Butler County’s biggest manufacturer and one of the region’s largest companies is struggling to keep profits up amid slow economic growth and an over-supplied global steel market.

AK Steel employs more than 2,000 people at its Middletown Works plant and West Chester Twp. corporate headquarters, and more workers through various contracts, making the financial well-being of the steelmaker important to the overall health of the local economy.

Last week, AK Steel reported a third quarter net loss of approximately $61 million, the fifth consecutive quarter the company failed to turn a profit. The company recorded a $12 million operating loss for the third quarter ending Sept. 30, the first operating loss since the end of last year.

Based on current market conditions, AK Steel said it also expects a negative bottom line this quarter.

AK Steel officials declined interview requests for this story, but in a conference call to investors Tuesday, James Wainscott, the company’s chairman, president and chief executive officer, said the third quarter was the company’s most difficult this year. He said AK Steel’s results reflect ongoing economic challenges in the U.S. and abroad.

“While the automotive market continues to improve, other markets continue to be sluggish,” Wainscott said during the call. “For example, our infrastructure and manufacturing market — which includes appliance, HVAC and general manufacturing customers — tracks housing and the general economy. Suffice it to say that demand is flat and competition is brutal for these steel orders.”

The same could be said for AK Steel’s distributor and converter markets, he said.

Operating profits or losses include the costs of labor, materials and overhead related to making steel. Net profits or losses include operating results, as well as expenses for financing, taxes and asset impairment.

“They need to be making operating profits to be healthy. Net income can vary from quarter to quarter in any one period based on other factors,” said Steve Wyatt, chair of Miami University’s finance department. “(If there’s) consistent operating losses over the business cycle, then something has to change.”

Because the steel business has a lot of ups and downs, Wyatt said company performance cannot be gauged by one quarter alone.

AK Steel said it expects to end the year with $550 million in liquidity. Liquidity — such as cash and short term investments — is important, Wyatt said.

“Having a large level of liquidity means that they can cover any shortfalls in profitability for long enough for business to recover and it is very important for firms in cyclical industries. It was a lack of liquidity that usually pushes firms into bankruptcy and other forms of re-organization,” he said.

The U.S. economy is growing less than two percent a quarter, according to the most recent estimates from the U.S. Bureau of Economic Analysis. That’s below the level economists say is needed for a stronger recovery.

Steel production has slowed down as the year has progressed. Domestic steel mills were working at more than 80 percent production capacity in April this year, according to the American Iron and Steel Institute. That dipped to below 70 percent this month. Production capacity in a strong economy is closer to 90 percent and if mills were fully using all their resources, it’d be 100 percent.

If steelmakers are capable of making more steel than the market demands, and must compete with steel imports often sold at lower prices, it becomes more difficult for them to grow, said Nancy Gravatt, a spokeswoman for the steel trade group. One of the steel group’s biggest concerns is unfair trade practices for steel, Gravatt said.

“We always say steel is a bellwether industry, and when it’s doing well, it’s a sign the economy is percolating along,” Gravatt said. “I think what we’re seeing right now is it’s a time of uncertainty.”

The steel industry is closely tied to key economic indicators such as auto sales and new home construction. AK Steel makes high-end steel products that go into vehicles, appliances, and heating, ventilation and air conditioning equipment that depend on growing automotive, infrastructure and construction markets worldwide.

U.S. vehicle production has shown good signs this year, but steel companies have yet to see a strong recovery in other markets, such as construction, said Arun Viswanathan, a senior equity analyst for Ohio-based Longbow Research who covers metal and mining industries.

Steel pricing has been volatile because of global economic conditions and overall slowing in economic activity, especially in construction and especially in China and Europe, Viswanathan said.

“The quarterly results were slightly better than their lowered expectations, however, the outlook speaks to an operating loss in the fourth quarter and unfortunately, that’s more indicative of a weak steel market,” Viswanathan said. “I think that there’s some benefits that they will enjoy from lower raw material costs, but those will likely materialize only in 2013 and likely starting in the second quarter.”

In 2011, AK Steel bought interests in iron ore and coal businesses, but won’t start seeing full benefits of its own supply of these key raw materials until probably 2014, he said. Until then, the company buys most raw materials on an open market vulnerable to price shocks. Prices of iron ore and metallurgical coal have come down from peak prices in recent years, but AK Steel is still working through higher priced material inventories.

“I think they’re taking a lot of good steps, unfortunately they’re really at the mercy of the market. We’re seeing that across a lot of companies this quarter,” Viswanathan said.

One of AK Steel’s competitors in specialty steels, Allegheny Technologies Inc. of Pennsylvania, also reported Wednesday down third quarter results.

“We are seeing conservative inventory management throughout the supply chains of most of our major end markets. These actions appear to be driven by concerns about the U.S. election and resolution of the U.S. ‘fiscal cliff’, and uncertain economic trends in China, Europe, and Japan,” said Rich Harshman, chairman, president and CEO of Allegheny, in a statement.

Neil Douglas, president of International Association of Machinists and Aerospace Workers Local 1943, the union representing hourly workers of Middletown Works, said the end of the year is typically a slower time. In the past, the company has reduced hours and done minor layoffs — weeks at a time and less than 20 people — this time of year, Douglas said.

Customers will eat through their inventories and production will ramp up after the first of the year normally, he said.

“It’s just up in the air. Of course we’re always thinking what would happen if the economy doesn’t take off soon enough,” Douglas said. “Again, I think one of the best things is that we make really good quality steel so people want to buy it from us for those items…We can make the best quality steel but we just need people to buy it.

“It’s the same worry that anybody else has. I wouldn’t say we’re all sitting here on pins and needles biting our teeth off every day,” he said.

Things are also slowing down at Matandy Steel and Metal Products of Hamilton. Matandy buys steel from AK. It processes coated carbon steel used in various products, including HVAC equipment or metal steel studs used in commercial construction.

“From our standpoint, year-to-year we’re kind of flat. We could always be busier. But overall, we’re pretty pleased with the way the year has went,” said Matandy President Andrew Schuster.

AK Steel operates seven steel plants in Ohio, Kentucky, Indiana and Pennsylvania, including in Middletown where the company was originally founded. Approximately 2,400 people work full-time at AK Steel in Butler County, at Middletown Works or headquarters in West Chester Twp.

When the economy entered a recession at the end of 2007 into 2008, AK Steel went from sales of more than $7 billion on 6.5 million tons of steel shipments in 2007 to shipping just less than 4 million tons of steel in 2009.

“At the beginning of ‘08 we were booming. We were cooking out here before it crashed. There was profit sharing, steel was doing really good,” Douglas said.

Total U.S. steel production in 2009 dropped to 62 million tons from nearly 100 million the year before.

Last year for AK ended in a net loss of $156 million and operating loss of $201 million on sales of 5.7 million tons, according to the company.

Wainscott told investors AK Steel is focused on lowering costs and signing more contracts with customers to help deal with wide swings in steel prices.

The Iron and Steel Institute, of which Wainscott is a past chairman, expects total U.S. steel shipments to increase six percent this year from last to 98 million tons.

“Even though we’re forecasting a six percent increase in shipments for the year over last year, we’re still not where we want to be,”Gravatt said.