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Why CLF Stock Is Rising despite Declining US Steel Prices

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Jul. 31 2019, Updated 2:36 p.m. ET

US steel prices

While domestic fundamentals improved after tariffs were imposed, weaker spot steel prices took hold shortly thereafter, which is driving the weakness in US steel companies’ stock prices. Last week, steel stocks U.S. Steel (X), AK Steel (AKS), and Steel Dynamics (STLD) made fresh 52-week lows. All leading steel companies are now negative for the year. Cleveland-Cliffs (CLF), which supplies iron ore pellets to these companies, has been the exception, mainly due to the upward price momentum in the seaborne iron ore prices.

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Declining US steel prices

US steel prices have fallen 19% year-to-date. The prices are down more than 25% since they peaked at $925 per ton in July last year. There are also concerns that China’s slowdown could put pressure on Chinese steel prices. The fall in Chinese steel prices generally echoes in steel prices around the world.

After the tariff announcement, US steel companies went on an investment spree and announced several new projects that would enhance US steel production capacity. Some observers see rising domestic steel production capacity as a bearish driver for US steel prices.

Supportive of earnings

Cleveland-Cliffs (CLF), however, remains optimistic about US steel demand and prices in the domestic market. In the company’s first-quarter earnings, Cleveland-Cliffs CEO Lourenco Goncalves mentioned that the fear of a supply glut in the US steel sector is “definitely exaggerated.”

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