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Top Steel Analyst Responds To Cliffs Q4: Iron Ore Prices Going To 'Fall Hard'

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Top Steel Analyst Responds To Cliffs Q4: Iron Ore Prices Going To 'Fall Hard'

Shares of Cliffs Natural Resources Inc (NYSE: CLF) soared by 15 percent and hit a new 52-week high of $10.94 after the company reported its fourth quarter results.

Cliffs earned $0.42 per share on revenue of $754 million. Wall Street analysts were expecting the company to earn $0.23 per share on revenue of $675 million.

Cliffs also guided its 2017 adjusted net income to be $510 and adjusted EBITDA of $850 million. The company's guidance is based on the premise that iron ore and steel prices will "average levels consistent with the full month of January throughout 2017."

Speaking to Benzinga, Axiom's Gordon Johnson noted that Cliff's guidance implies HRC (hot rolled coil steel) prices will remain near two-year highs. However, the analyst is expecting iron ore prices to not only fall, but "fall hard."

"When you also consider our view that auto sales/production will turn into a headwind for the US steel industry this year, vs. a tailwind the past 7 years, as well as more domestic steel supply from Big River and Acero Junction, we see the US steel sector coming under pressure," Johnson continued. "We acknowledge that C4Q16 was good; prices for HRC steel and iron ore have surged."

The analyst also noted that China is "key" for the steel industry moving forward and the country is about to enter an inventory destocking cycle after entering a massive restocking cycle in October of last year. This merely adds to Johnson's belief that iron ore prices could move "significantly" lower.

Finally, Johnson also cited a political factor in his bearish steel outlook.

"The surge in CRC premium vs. HRC is likely to bring a LOT of CRC and hot-dipped-galvanized ("HDG") imported steel into the US this year; and it won't be [from] China. It will be the European companies our current administration likes."

Johnson currently has a Sell rating on Cliffs' stock.

Latest Ratings for CLF

DateFirmActionFromTo
Sep 2019MaintainsOutperform
Sep 2019MaintainsBuy
Apr 2019UpgradesNeutralOutperform

View More Analyst Ratings for CLF
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