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How Will Steel Prices in the US Impact Cliffs’ Realized Revenues?

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Steel supply and demand

Just like the prices of other commodities, steel prices depend on supply and demand dynamics of steel. Steel has seen a change in fortunes this year. While in the first half of the year, the major driver was high anti-dumping duties on imported steel, more recently, Trump’s win has been a positive catalyst for the US steel industry.

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Steel prices have fallen

The graph above shows the recent movement in HRC (hot-rolled coil) prices. According to the data compiled by Metal Bulletin, spot HRC prices rose from $380 per short ton to $640 per short ton between January 2016 and June 2016.

Spot CRC (cold rolled coil) prices rose from $520 per short ton to $840 per short ton over the same period. The rally in US steel prices, which was largely fueled by trade cases, lost pace in 3Q16 and spot HRC prices fell to $470 per short ton.

Outlook

While flat steel prices seem to have found their bottom—at least, in the HRC space—steelmakers’ ability to raise prices is what will impact Cliffs’ realizations. U.S. Steel (X) announced a $30 increase in flat rolled steel products in October. Some of the other producers including AK Steel (AKS) have also followed suit.

As reported by Barrons, ArcelorMittal (MT) increased its HRC prices by $40 per ton to $600 per ton in November. More price hikes by steel producers backed by lower imports and higher demand could be quite conducive to Cliffs’ volumes and realizations.

If you want to avoid the hassles of picking individual stocks, you can consider the SPDR S&P Metals and Mining ETF (XME). Currently, XME has invested more than half of its holdings in US-based steel companies.

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