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How Infrastructure Spending Could Boost Cliffs’s Volumes



Infrastructure spending

Trump had said originally that he intended to spend more than $500 billion on infrastructure, which was roughly twice the amount Hillary Clinton was planning to allocate to the infrastructure sector. He reiterated his stance in the victory speech after the win. Increased investments in infrastructure such as bridges, roads, and airports could boost steel demand.

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Demand-driven slump?

Cliffs Natural Resources’ (CLF) CEO, Lourenco Goncalves, mentioned during its 3Q16 earnings call that illegally dumped steel is less of a worry after the anti-dumping duties on trading partners were imposed. He mentioned that “the recent weakness in steel prices is demand driven rather than supply driven.” Now, as a Trump presidency could boost infrastructure due to his protectionist measures, more and more domestic steel is used, and US steelmakers’ orderbooks could strengthen. This could result in volume upside for companies such as US Steel (X), AK Steel (AKS), and ArecelorMittal (MT).

Upside to Cliffs’s volumes

Cliffs’s US iron ore volumes depend on customers’ orderbooks. Its management mentioned during the 3Q16 earnings call that the company will start receiving the orders for 2017 in the fourth quarter. If customers are more confident regarding a higher sales outlook in 2017 and beyond, Cliffs’s volumes could have an upside. Currently, the company is comfortable with its preliminary 2017 sales volumes forecast of 19 million tons.

This positive sentiment around US steelmakers is also echoed by investment bank Jefferies. Its analyst mentioned that the US steel industry “should stand out as a unique beneficiary of a Trump presidency.”

The Materials Select Sector SPDR ETF (XLB) is an alternative way to play the materials space. Currently, Nucor (NUE) forms 2.8% of XLB’s portfolio.


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