Improved U.S. Iron Ore Demand Outlook Post Election Behind Our Revision In Cliffs’ Price Estimate To $8
The outcome of the recent U.S. presidential election has boosted the prospects of the domestic steel industry. President-elect Trump’s plans to sharply boost infrastructure investment and his tough stance on protecting the domestic steel industry from unfairly-traded steel imports are likely to translate into an improved business environment for domestic steel producers. An increase in demand for steel as a result of this improved business environment will benefit domestic iron ore producers such as Cliffs Natural Resources since iron ore is a raw material in the production of steel.
President-elect Trump has envisaged a $550 billion revamp of the nation’s infrastructure, with an emphasis on transportation infrastructure. [1] An increase in infrastructure spending will translate into an increase in domestic demand for steel and iron ore. Moreover, the President-elect has been fairly vocal in his intent to safeguard the interests of the domestic steel industry from unfairly-traded steel imports. The domestic industry has suffered from an influx of cheap steel imports over the past couple of years. U.S. authorities have imposed punitive tariffs on steel imports from a number of countries this year including major trading partners such as South Korea and China. Assuming that the President-elect follows through on his campaign promise of ensuring a level playing field for the domestic steel industry, it would certainly benefit Cliffs Natural Resources.
With the incoming administration looking likely to create a more favorable business environment for iron ore producers, we have reviewed our estimates for Cliffs’ North American iron ore shipments. The following graph illustrates our revised expectations for the company’s North American iron ore shipments, which represents a 10% increase in shipments by the end of the forecast period as compared to our previous forecast.
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In addition to the change in our shipment forecast, we have also revised our margin forecast for the company’s North American iron ore division corresponding to the change in our shipment forecast. The changes to our estimates have translated into our new $7.98 price estimate for Cliffs Natural Resources, which is a reflection of the changed business environment facing the company.
Have more questions about Cliffs Natural Resources? See the links below.
- What Is Cliffs Natural Resources’ Fundamental Value Based On 2015 Results?
- What Is Cliffs Natural Resources’ Revenue And EBITDA Breakdown?
- How Has Cliffs Natural Resources’ Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Did Cliffs Natural Resources’ Revenue & EBITDA Decline Over The Last 5 Years?
- By What Percentage Can Cliffs Natural Resources’ Revenue & EBITDA Change Over The Next 3 Years?
- How Will Cliffs Natural Resources’ Revenue Composition Change by 2020?
- How Do Cliffs Natural Resources’ Margins Compare With Those Of Iron Ore Mining Giants Such As Rio Tinto And Vale?
- Why ArcelorMittal Is The Most Important Customer For Cliffs’ U.S. Iron Ore Sales
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Notes:- Transportation & Infrastructure, www.greatagain.gov Trump Transition Website [↩]