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Does Cliffs’s US Pricing Have an Upside from Trump’s Election?

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Nov. 29 2016, Updated 8:04 a.m. ET

Realized prices in USIO

Volume is one variable for determining revenues, but realized prices are important to help assess market sentiment. Cliffs Natural Resources’ (CLF) realized revenue for its USIO (US Iron Ore) segment depends on customer demand for iron ore pellets. Demand, in turn, depends on factors such as customer order books, steel imports, and utilization.

Customer mix, industrial commodity (DBC) prices, freight rates, energy prices (USO), production costs, and hot rolled band steel prices are some of the other factors influencing Cliffs Natural Resources’ realized revenues.

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Pressure on realized prices

In 3Q16, Cliffs’s average realized prices were 4.0% lower year-over-year at $73.50 per ton. Prices also fell 7.7% sequentially. The rally in steel prices (SLX), which was driven mainly by trade cases in the first half of the year, is now fading. HRC prices have fallen ~$165 per short ton from their June 2016 peak and are currently at $475 per short ton.

Lower spot steel prices led to lower pricing for products. Cliffs’s US peers Nucor (NUE) and Steel Dynamics (STLD) both reported a sequential fall in their 3Q16 steel shipments. The third quarter was also slow in terms of shipments for United States Steel’s (X) European operations.

Upside to realized price with Trump?

With a Donald Trump win in the US presidential election, steelmakers can expect imports to fall. This should help them with much-needed price increases. Cliffs is guiding for realized revenue per ton of $75–$77. But it’s important to note that it’s taking an HRC (hot rolled coil) price assumption of $470 per ton.

It’s also worth noting that the guidance was provided before the US presidential election. We’ve seen some upward traction in US spot steel prices over the last week. The upward momentum in US steel prices could continue as we head into the seasonally strong first quarter.

Trump’s election could help build momentum in the steel industry. We could see another few rounds of price hikes by US steel companies such as AK Steel (AKS), Nucor (NUE), and Steel Dynamics (STLD), which would help Cliffs’s realized prices.

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