US steel prices
One of the factors driving the weakness in US (IVV)(SPY) steel companies’ stock prices and Cleveland-Cliffs’s (CLF) stock price, in particular, is the falling spot steel prices domestically. After rising to their highest level in a decade in 2018, hot-rolled coil (or HRC) prices in the United States have started giving way. Spot HRC peaked at ~$920 per ton in July and is now below the $750 per ton level despite efforts from companies like Nucor (NUE) and ArcelorMittal (MT) to increase prices.
After receiving a significant boost this year following the imposition of the Section 232 tariffs, the market expects weakness in prices going into the fourth quarter. Producers with December availability are discounting prices into the seasonally weak period. The recent weakness in US steel prices could be due to weak global steel prices. Chinese steel prices have fallen ~20% from their 2018 peaks. If prices move down any further, steel mills might announce another price rise to put a floor under the prices.
Still supportive of earnings
Even after the recent fall, steel prices remain supportive of US steelmakers and Cleveland-Cliffs (CLF). While there could be some more correction, given the seasonally weaker period, a bottom doesn’t seem too far off. CLF stated during its second-quarter earnings call that it benefits from steel price rising more immediately than domestic steelmakers.
Apart from issues at home, US steelmakers are facing global concerns—especially the slowdown in China. We’ll discuss this issue in the next part of this series.