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Cleveland-Cliffs Stock Near Its 52-Week High—Looking ahead to 4Q

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Cleveland-Cliffs’ impressive YTD stock gains

Cleveland-Cliffs (CLF) stock has whipsawed recently, first due to recommendations from the US Department of Commerce in February with respect to the Section 232 probe. CLF stock was also affected by the imposition of steel tariffs as well as the exemption of some countries from the tariffs, which toned down their overall impact. 

Overall, CLF’s price action has been impressive. Cleveland-Cliffs stock is currently trading at $12.80, which is close to the 52-week high of $12.90 it reached on September 25. Its YTD (year-to-date) gain through October 1 is 77.0%.

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Cleveland-Cliffs’ outperformance

Cleveland-Cliffs (CKF) stock has significantly outperformed its US (DIA) steel peers year-to-date. Compared to CLF’s 77.0% rise, Steel Dynamics (STLD), Nucor (NUE), ArcelorMittal (MT), AK Steel (AKS), and U.S. Steel Corporation (X) have returned 5.9%, 1.1%, -3.6%, -12.9%, and -14.0%, respectively.

Reasons for the divergence

There’s a huge divergence between the prices of CLF and US steel stocks despite the fact that their common drivers—US steel prices, steel production, steel demand, and the like—are almost the same. This could be explained by CLF’s unique position as the supplier of choice with respect to iron ore pellets.

Cleveland-Cliffs is the largest and lowest-cost supplier of iron ore pellets in the United States. Moreover, it earns better margins than the integrated companies. Most of its revenue is secured through long-term contracts by partially fixed-price contracts.

Lourenco Goncalves, Cleveland-Cliffs’ CEO, pointed out during its second-quarter earnings call that the company benefits from steel price increases more immediately than domestic steelmakers and service centers.

Series overview

In this series, we’ll see whether CLF stock can continue its outperformance for the rest of 2018, based on the factors driving its performance. We’ll look at indicators related to the domestic US steel market, such as US iron ore imports, US steel demand, steel production, and domestic steel prices.

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