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Can US Steel Prices Help Cleveland-Cliffs and Peers?

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Steel prices

Steel prices are the major driver of steelmakers’ earnings and revenues. According to Platts, in 2017, US steel prices rose 17.5% on average compared to 2016. While steel prices remained more or less range-bound in 2017, they started showing upward momentum in December 2017. The momentum in 2018 year-to-date has also remained strong.

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Upside to steel prices after trade action

After the announcement of tariffs on imported steel, there’s more upside for prices. The Wall Street Journal reports that hot-rolled coil (or HRC) prices are up nearly 45% from October 2017 levels. Prices recently touched a high of $850 per ton. In the past, steel prices had shown upward momentum after trade actions. For now, however, prices have taken a pause, awaiting further clarity on the tariffs and exemptions, which could significantly vary the extent of the impact on prices.

Realized prices for CLF

Cleveland-Cliffs’ (CLF) management was positive regarding its realized prices from the US segment on its 4Q17 earnings call. One of the major factors driving this bullishness was the expectation of a favorable outcome of the Section 232 investigation.  The company expects US realizations to be in the range of $97 to $102 per long ton. This range is significantly higher than the $88-per-ton realized price the company achieved in 2017. Prices year-to-date for HRC steel are higher than what Cliffs expected, which implies an upside for realized prices for its US division.

US steelmakers (SLX) Nucor (NUE), AK Steel (AKS), and ArcelorMittal (MT) reported higher average selling prices in 4Q17 due to strong momentum in US steel prices.

The recent trade action should act as another positive catalyst for steel prices in 2018.

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