Is Cliffs’s Turnaround Going to Last?



Reversing fortunes?

US steel stocks (SLX) have been among the biggest gainers since Donald Trump won the US presidential election. His stance on protectionism and infrastructure investment led to a steel stock rally. U.S. Steel (X) and AK Steel (AKS) were up more than 300% in 2016 while Cliffs Natural Resources (CLF)—the largest iron ore pellet supplier to North American steelmakers—rose more than 400% in 2016.

But 2017 didn’t start as well for these stocks. Steelmakers U.S. Steel and Nucor (NUE) have already lost most of their gains year-to-date. CLF is also in the negative with a loss of 2.6% year-to-date as of April 5, 2017.

Article continues below advertisement

Cliffs’s turnaround

Cliffs has witnessed a turnaround of sorts in the last three years. New management took over the company in August 2014, when Cliffs was in a dire state. There was a huge debt wall that seemed almost insurmountable due to weakness in commodity prices in the global market as well as lower steel prices in the United States due to cheaper imports. However, over the years, with careful planning and execution, management has reduced the debt to more manageable levels. Please read Is Cliffs’s Debt Maturity Wall Falling Apart? for more analysis.

Higher iron ore and steel prices in the United States also helped the company in 2016 and year-to-date in 2017.

In this series

In this series, we’ll look at indicators related to the domestic US steel market as well as the seaborne iron ore market. You can track them to get a sense of what will likely drive steel prices and steelmakers in the coming months.

The indicators we’ll look at mainly relate to US steel demand, domestic steel prices, US iron ore imports, Chinese steel demand, and seaborne iron ore demand.

In the next part of this series, we’ll see how Trump’s recent moves have impacted US steel companies and Cliffs Natural Resources.


More From Market Realist