uploads///CLF US Steel

Cleveland-Cliffs and U.S. Steel Await Another ‘Trump Effect’

<p>Cleveland-Cliffs (CLF) and U.S. Steel (X) are in the red this year. As we head into the 2020 election, both companies desperately need another &#8220;Trump effect.&#8221;</p>

Mohit Oberoi, CFA - Author

Nov. 8 2019, Updated 9:02 a.m. ET

Cleveland-Cliffs (CLF) and U.S. Steel (X) are in the red this year despite President Trump’s Section 232 tariffs. Notably, President Trump won the election three years ago. Protecting US manufacturing jobs was one of his key pledges during the 2016 election. Metal and mining stocks like U.S. Steel and Cleveland-Cliffs rallied after the election. Wall Street termed impact as the “Trump effect” or “Trump trade.” As we head into the 2020 election, both companies desperately need another “Trump effect.”

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Cleveland-Cliffs and U.S. Steel

Cleveland Cliffs and U.S. Steel have sagged this year. They have underperformed the broader markets. Nucor’s (NUE) returns have also trailed the Dow Jones this year. AK Steel (AKS) has been the only saving grace in the sector. The company’s returns are in line with broader markets. However, AK Steel stock is way below the price levels that we had before President Trump’s victory in 2016. The case isn’t different for U.S. Steel stock. President Trump’s election fueled a sharp rally in metal and mining names like U.S. Steel, AK Steel, and Cleveland-Cliffs.

Trump’s steel tariffs

President Trump delivered on his pre-election pledge and imposed a 25% tariff on US steel imports last year. The tariffs were meant to lift US steel production and the industry’s capacity utilization ratio. Higher domestic production also helps buoy iron ore pellet demand, which benefits Cleveland-Cliffs stock. Last year, there was a sense of rejuvenation in the US steel industry. U.S. Steel restarted curtailed plants, while Nucor and Steel Dynamics announced a flurry of new projects. US steel companies’ profitability also soared in 2018.

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Life has come full circle for Cleveland-Cliffs and U.S. Steel

Meanwhile, President Trump’s steel tariffs have been in place for a little under 20 months now. Life has come a full circle for Cleveland-Cliffs and U.S. Steel stocks. Domestic steel prices have fallen to multiquarter lows and plant restarts have given way to plant closures. In 2019, U.S. Steel and ArcelorMittal (MT) announced plant curtailments, while AK Steel permanently closed one of its idled plants.

Another “Trump effect”

Three years ago, President Trump’s election fueled a sharp rally in Cleveland-Cliffs and U.S. Steel. Now, the companies are waiting for another ‘Trump effect.” I think that the so-called “Trump effect” for Cleveland-Cliffs and U.S. Steel could be the announcement of big infrastructure investments that President Trump touted in his 2020 campaign. A US-China trade deal could help lift the sentiments for the companies. Meanwhile, U.S. Steel has been on fire this month. The stock has gained 17.8% in November based on its closing price on Thursday. Cleveland-Cliffs has risen 1.8% during the same period. Read Why US Steel Shorts Might Lose Their Bets to learn more.


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