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Cliffs Natural Resources: Fighting All Odds to Soar in 1Q16

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Iron ore prices

The benchmark seaborne iron ore prices rose by 23% in the first quarter of 2016 in contrast to what market participants thought would happen. The supply disruptions and a rebound in steel prices helped iron ore prices year-to-date.

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Cliffs Natural Resources soared

Depending on their leverage to iron ore prices, iron ore miners have shown varying degrees of gains in this period. On a relative basis, Cliffs Natural Resources (CLF) has outperformed other iron ore miners by a wide margin. It had a YTD rise of 182% as of April 19, 2016. In comparison, Fortescue Metals Group (FSUGY) and Vale (VALE) have risen 63% and 81%, respectively. Vale forms 2.9% of the iShares MSCI Brazil Capped ETF (EWZ).

On the other hand, Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen 8% and 7%, respectively.

Rationale for rally

Cliffs’ share price rally wasn’t just because of the seaborne iron ore prices. The recent announcements regarding anti-dumping duties on seven steel-producing countries also helped Cliffs as well as other domestic US steel companies like U.S. Steel (X), ArcelorMittal (MT), Timken Steel (TMST), and AK Steel (AKS). Currently, XME invests almost half of its holdings in US-based steel companies.

While Cliffs’ share price has seen a strong rally year-to-date, investors might want to know whether its upcoming earnings justify the rally. We’ll examine this question in the rest of this series.

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