Cliffs Natural Resources (CLF) is mainly exposed to the US domestic steel market. It has long-term contracts with US steelmakers and is affected much more by what’s happening in the US steel sector than in the seaborne iron ore market.
After Donald Trump’s US election win, most analysts are becoming optimistic about the US steel sector, given Trump’s focus on protectionism and infrastructure. Jefferies has upgraded U.S. Steel (X) from a “hold” to a “buy” rating with a target price of $26. Jefferies stated, “The US steel industry should stand out as a unique beneficiary of a Trump presidency. Protectionism will significantly rise…the US is already short steel, and falling imports will improve domestic pricing power.”
Morgan Stanley (MS) also turned bullish on US steel stocks (SLX) after the election. Its analyst Evan Kurtz wrote, “We believe Trump’s plans for infrastructure spending and trade protection, as two of the most digestible of his proposals, could be early in the queue.” Kurtz upgraded both U.S. Steel and AK Steel (AKS) from “equal weight” to “overweight.”
Better fortunes for the US steel sector also bode well for Cliffs Natural Resources (CLF), the only North American pure-play iron ore pellet supplier. Kurtz upgraded Cliffs from “underweight” to “equal weight” and increased its target price from $3 to $9.
JPMorgan Chase (JPM) raised its target prices for steel stocks as well as for Cliffs on November 29, 2016. JPM has an “overweight” rating on CLF. It’s raised the company’s target price from $7 to $10.
…followed by downgrades
Macquarie, on the other hand, downgraded six steel stocks on November 29, 2016. AKS, Nucor (NUE), and Steel Dynamics (STLD) were three of those names. This downgrade followed a steep rally after Trump’s win.
According to a Macquarie analyst, “Most steel stocks have exceeded our target prices, and still exceed them even after we raised them to reflect the impact of this price move to $550–$560. While we expect the price current move to $550–$560 a ton to succeed, we don’t see further moves beyond that as likely. Steel prices will be higher than we earlier thought. But at this point, steel prices look exposed to a stronger US dollar.”