Cliffs’s share price rally
Cliffs Natural Resources (CLF) has enjoyed a steep rally of more than 200% year-to-date. While the first half of 2016 saw US steel prices rally, the pressure returned in 3Q16 and chipped away at Cliffs’s gains. After rallying from $370 per ton at the start of the year to $640 per ton towards the end of June, hot rolled coil (or HRC) prices again raced back to $475 per ton. The HRC price is the main factor driving the realized prices for Cliffs’s US iron ore division.
Falling steel prices
The rally in steel prices (SLX), which was driven mainly by trade cases, is now fading. Spot 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 the products. Cliffs’s US peers Nucor (NUE) and Steel Dynamics (STLD) both reported a sequential decline in their respective 3Q16 steel shipments. The third quarter was also slow in terms of shipments for U.S. Steel’s (X) Europe operations as well.
With Trump’s win, steelmakers can expect the imports to stem further. This should help them with the much-needed price increases.
Impact on realized prices
The hike in prices will be positive for Cliffs. Cliffs Natural Resources is still taking an HRC price assumption of $470 per ton compared to current prices. If prices increase, it could lead to an upside for Cliffs’s realized prices as well.
Thus Trump’s protectionist measures could lead steel prices in the US to rally, benefiting Cliffs. In the next part, we’ll discuss the impact Trump’s infrastructure focus could have on US steelmakers and Cliffs.