What Expectations Are Cliffs and Its Peers Setting for 2H17?

The US steel sector and Cliffs Natural Resources

June 2017 was a relatively good month for US steel stocks (SLX), as they rebounded after May’s selling pressure. Cliffs Natural Resources (CLF) rose 17.5% in June after a 12.4% loss in May.

Most of the optimism in the US steel sector is due to expectations of stringent action against steel imports under the ongoing Section 232 investigation. Higher imports have negatively impacted the capacity utilization and the pricing power of these US steelmakers.

What Expectations Are Cliffs and Its Peers Setting for 2H17?

Setting expectations for 2H17

Steel Dynamics (STLD) and Nucor (NUE) provided their 2Q17 earnings guidance in mid-June. The guidance from both companies was below the consensus expectations. STLD expects earnings per share (or EPS) of $0.60–$0.64 compared to the consensus expectation of $0.81 for 2Q17.

Nucor guided for EPS of $1.00–$1.05, which is also lower than analysts’ estimates of $1.22. U.S. Steel (X), on the other hand, gives annual earnings guidance. Axiom Capital is of the view that U.S. Steel could revise its 2017 guidance downward.

Cliffs Natural Resources (CLF) gives annual guidance and revised its EBITDA[1. earnings before interest, tax, depreciation, and amortization] guidance for 2017 lower in its 1Q17 earnings. The downgrade was mainly due to the lower-than-expected US steel prices and seaborne iron ore prices.

Series overview

To understand Cliffs Natural Resources’ stock trend, it’s important to understand the dynamics of the US steel market and the seaborne iron ore market. In this series, we’ll analyze the steel supply–demand dynamic and factors such as US steel production, demand, prices, and imports.

We’ll also analyze factors such as the Chinese steel demand outlook, the country’s supply situation, and its price outlook.

We’ll start by looking at US imports in the next article.