CLF Might Benefit, US Steel Imports Tumble

Cleveland-Cliffs (CLF) stock has risen 12.7% this month. The stock has risen 9.2% YTD (year-to-date) based on its closing prices on Tuesday. Steel and iron ore stocks have looked strong in the fourth quarter. U.S. Steel (X) and AK Steel (AKS) have gained 18.8% and 18.9%, respectively, in the fourth quarter. Notably, US steel imports have continued to fall. US steel and iron ore companies, including CLF, have frequently blamed higher steel imports for their woes. So, will falling US steel imports benefit US steel and iron ore producers?

CLF stock

CLF stock has traded weak for most of the year. However, the fourth quarter has been good for the stock. So far, CLF stock has risen 14.4% in the fourth quarter. Notably, CLF supplies iron ore pellets to US steel companies. ArcelorMittal (MT) and AK Steel (AKS) are the company’s top two customers. However, CLF wants to tap into the EAF (electric arc furnace) market with its upcoming direct reduced iron plant. U.S. Steel is also betting on EAFs to revive its fortunes. Read CLF, U.S. Steel Corporation Read the Writing on the Wall to learn more.

US steel imports and Trump’s tariffs

Last year, President Trump imposed a 25% tariff on US steel imports after the Department of Commerce flagged them as a “national security threat.” CLF and US steel producers welcomed the move. Despite exemptions for some countries, including major exporters like Canada and Mexico, US steel imports have fallen over the last year. According to the US Census Bureau’s preliminary data, US steel imports fell more than 33% YoY to 1.97 million metric tons in October. However, imports increased on a month-over-month basis. Looking at the YTD picture, US steel imports have been subdued. They have fallen 15.7% in the first ten months of 2019.

Falling steel imports impact CLF and US steel companies

US steel companies and CLF have frequently blamed higher steel imports for their woes. So, the fall in US steel imports looks like a promising development. Lower steel imports should lead to import substitution, which would lead to higher domestic steel production. Higher US steel production is also positive for CLF due to higher demand for its pellets. However, while US steel production was strong in the first half of the year, it has been falling for the past few months. According to the World Steel Association, US steel production fell 2.0% in October. US steel production could fall in November based on the weekly steel production data. Overall, falling steel imports aren’t accompanied by a rise in domestic steel production.

Lower domestic production might not be all that bad

Meanwhile, US steel prices have been strong over the last month. Falling domestic steel production helped US steel prices. Steel, like other commodities, is sensitive to the demand-supply equation. The uptrend in US steel prices is positive for CLF. For steel companies, average selling prices are a bigger earnings driver compared to shipments. While curtailing plants would hit U.S. Steel’s shipments, it would be more than offset with higher average selling prices. CLF’s average selling prices depend on US steel prices and iron ore prices. While falling imports haven’t led to a spike in US steel production, they have helped restore the supply balance. US steel mills have been able to increase their selling prices. Rising domestic prices would benefit CLF and US steel producers. Read Is Cleveland-Cliffs or U.S. Steel Stock More Attractive to learn more.