Could Divergence between Cleveland-Cliffs and Steel Continue?



US steel earnings season

The first-quarter earnings season has ended for US steelmakers. Overall, it was a good quarter for steel companies in terms of earnings beats. Among the major US-based steel and iron ore players, only Steel Dynamics (STLD) missed the mark on earnings, while U.S. Steel (X), AK Steel (AKS), Nucor (NUE), and Cleveland-Cliffs (CLF) posted better-than-expected earnings.

Cleveland-Cliffs (CLF) released its first-quarter earnings results before the market opened on April 25. Cleveland-Cliffs reported adjusted EPS of $0.55, which missed the earnings estimates of $0.59. The company’s revenues were $696 million, 36% higher YoY. However, the earnings missed analysts’ estimate of $715 million.

Article continues below advertisement

CLF outperforms peers

CLF stock has outperformed its US steel peers significantly YTD. Until May 28, CLF has gained 20.1%, while all the US steel stocks have had a negative return in the same period. U.S. Steel Corporation (X), ArcelorMittal (MT), AK Steel (AKS), Steel Dynamics (STLD), and Nucor (NUE) have fallen 27.3%, 24.0%, 15.1%, 9.4%, and 1.5%, respectively, while the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have gained 12.1% and 8.7%.

The strong outlook going forward

One of the reasons for the dismal performance of US steel stocks is the weak US steel prices. US steel prices, which surged last year, have now fallen to levels we saw before the tariffs were imposed. There are also concerns that China’s slowdown could put pressure on Chinese steel prices. For CLF, however, the drivers are diverging with US steel stocks.

Vale’s (VALE) dam collapsed in January, which impacted the iron ore supply, thereby pushing iron ore prices to a five-year high. This situation worked in CLF’s favor. Moreover, due to a tighter supply of iron ore pellets, the Atlantic pellet premiums are rising, benefitting Cliffs.


More From Market Realist