Cleveland-Cliffs Inc. CLF shares have lost 33.6% in the past six months, underperforming the Zacks Mining – Miscellaneous industry’s decline of 7.2%. The bearishness is partly due to the underlying challenges in the steel industry as reflected by the significant retreat in U.S. steel prices due to a combination of demand slowdown and oversupply, which have triggered a downward revision in CLF’s earnings estimates.
CLF is currently trading at a roughly 56% discount to its 52-week high of $22.97 reached on April 4, 2024.
Technical indicators show that CLF has been trading below the 200-day simple moving average (SMA) since April 30, 2024. The stock is also trading below the 50-day SMA since Dec. 4, 2024. Following a death crossover on June 13, 2024, the 50-day SMA continues to read lower than the 200-day SMA, indicating a bearish trend.
CLF’s Shares Trade Below 50-Day SMA
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Given the significant pullback in Cleveland-Cliffs’ shares, investors might be tempted to snap up the stock. But is this the right time to buy CLF? Let’s find out.
Vertically Integrated Profile & Competitive Strength Aid CLF
Cleveland-Cliffs is the largest producer of iron ore pellets in North America and the region's biggest flat-rolled steel producer. The acquisition of AK Steel Holding Corporation, completed in March 2020, allowed CLF to become a vertically integrated steel company. Its vertically integrated footprint, starting from mining to the production of high-value finished steel products, provides it with a competitive advantage in supplying automotive and other steel end markets. As a leading supplier of automotive-grade steel in the United States, Cleveland-Cliffs’ automotive steel business remains the fulcrum of its primary competitive strength.
CLF benefits from its competitive strength by leveraging the ability to source its primary steelmaking feedstock, iron ore pellets, as well as scrap and hot-briquetted iron (HBI) domestically and internally at a stable cost vis-à-vis its peers that largely depend on imported pig iron whose supply has been disrupted amid the Russia-Ukraine conflict.
Cleveland-Cliffs, in November 2024, closed its buyout of Stelco Holdings Inc. The acquisition enhances CLF’s steelmaking capabilities, doubling its exposure to the flat-rolled spot market and leveraging cost advantages in raw materials, energy, healthcare and currency. Stelco's integration diversifies CLF’s customer base across construction and industrial sectors, generating synergies in procurement, overhead and public company-related expenses. CLF is expected to benefit from the contributions of shipments from Stelco starting fourth-quarter 2024.
Cost Cuts to Yield Margin Benefits for Cleveland-Cliffs
Cleveland-Cliffs is executing cost-cutting initiatives, leading to reduced steel-making expenses. In 2023, the company achieved an $80 per ton reduction in costs aided by decreased input costs and increased productivity. CLF also realized a $40 per ton sequential decline in unit costs in the third quarter of 2024, driven by improved operational efficiencies. It is expected to continue to benefit from reduced steel unit costs in the fourth quarter, partly aided by Stelco.
Weaker Steel Prices Weigh on CLF’s Prospects
CLF, like most U.S. steel producers, is hamstrung by the significant downward correction in steel prices, which has largely contributed to the stock's downward slide. U.S. steel prices declined sharply in 2024 due to a slowdown in end-market demand and oversupply after a strong run in late 2023 that extended into early 2024.
The benchmark hot-rolled coil (HRC) prices tumbled more than 40% last year from $1,200 per short ton at the start of 2024. The downside has been influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties.
Sluggish industrial production and construction activities also contributed to the decline. The price slump led to lower profitability for steel producers. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected in the near term, given the weak manufacturing backdrop and demand weakness. Prices are currently hovering around the $700 per short ton level.
A slowdown in global automotive production curtailed steel consumption in this key end-market in 2024. The construction sector experienced a slowdown in the United States due to high interest rates, which dampened steel demand in this market. Elevated borrowing costs and inflation took a bite out of the residential construction industry. Manufacturing activities also weakened amid softening demand for goods and higher borrowing costs.
Cleveland-Cliffs’ Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for CLF has been revised downward over the past 60 days. The consensus estimate for the fourth quarter of 2024 has also been revised lower over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at a loss of 67 cents, suggesting a year-over-year decline of 162.6%. Earnings are expected to register a decline of 900% in the fourth quarter.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
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CLF Stock Underperforms Industry & S&P 500
CLF’s price performance has been lackluster, partly reflecting the broader industry challenges triggered by a significant decline in steel prices. Its shares have lost 44.1% over the past year, underperforming the industry’s 11.5% decline and the S&P 500’s rise of 24.7%. The stock has also underperformed its major U.S. steel-making peers, with Steel Dynamics, Inc. STLD gaining 8%, while Nucor Corporation NUE and United States Steel Corporation X declining 26.7% and 23.6%, respectively.
CLF’s One-year Price Performance
Zacks Investment Research
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How Should Investors Play the CLF Stock?
Cleveland-Cliffs benefits from its vertically integrated footprint, competitive strength and cost-saving actions. The Stelco buyout also reinforces its steelmaking capabilities and expands its exposure to the flat-rolled spot market. Despite these positives, CLF is exposed to the choppiness in the steel space, which has led to its underperformance. A significant pullback in steel prices coupled with declining earnings estimates, cast a pall on the company's prospects. Therefore, it is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding onto the CLF stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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