TimkenSteel ( NYSE: TMST ) -16.4% in Tuesday's trading to its lowest level since February after KeyBanc downgraded shares to Sector Weight from Overweight, citing various headwinds including an explosion at its Faircrest steel plant, which is the company's only currently running melt shop.
KeyBanc's Philip Gibbs said preliminary estimates see the melt shop down for 3-6 weeks, and the facility is not likely to procure scrap for the August buy, making the company likely to melt at least 30% less Q/Q, prompting the analyst to cut 20%-25% from estimated Q3 volumes and shipments as the company likely melts at least 30% less than in the previous quarter.
Gibbs also anticipates prime scrap grades falling by ~$200/ton during the past two months plus August vs. an expected $50-$70/ton decline for shredded grades.
Operational issues and recent capital allocation of companies such as Commercial Metals, Nucor and Steel Dynamics "point to what we believe is dwindling takeout optionality despite structural cost changes seen in recent quarters," Gibbs added.
TimkenSteel's ( TMST ) Q1 adjusted earnings came in at $0.92/share on revenues of $352M .
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TimkenSteel cut at KeyBanc after explosion at only running melt shop