Vertical sees Cleveland-Cliffs shares heading to near $5 amid excessive supply
In a research note titled "Does the US Steel Industry Supply/Demand Backdrop Suggest CLF is Nearing the 'Cliff'?," Vertical Group analyst Gordon Johnson maintains a Sell rating on shares of Cleveland-Cliffs. The analyst believes "excess" supply is ramping into a "late cycle" U.S. steel market. Growth for sheet products in Q2 went negative at down 1.6% year-over-year, a "sharp deceleration" from the trailing four quarter average of 5.1% year-over-year growth, Johnson writes to investors. In addition, with 10-year U.S. treasury rates at levels not seen since 2011, continued headwinds to both auto and construction demand in the U.S. is likely, the analyst contends. Lastly, he points out that after peaking on July 12, U.S. hot rolled coil spot prices have dropped 8.9% in just over three months. Steel investors have historically reacted "rather negatively to late cycle irrational capacity ramps," Johnson cautions. He has a 12-month price target of $5.13 for shares of Cleveland-Cliffs. The stock in morning trading is down 4%, or 47c, to $10.87.