- KeyBanc downgraded Cleveland-Cliffs to Sector Weight, arguing the 47%+ six-month rally has pushed valuation beyond prior upside.
- The firm expects near-term free cash flow and margins to stay pressured by higher unit costs, lagged pricing, and the ArcelorMittal slab contract expiring at end-2025.
- KeyBanc forecasts hot-rolled coil at about $880/ton in 2026 and sees steel demand flat in 2025 then ~1% higher in 2026 on lower imports and ~80% mill utilization.
- Potential upside levers include non-core asset sales, improved liquidity, and a possible POSCO JV, but timing and impact are uncertain.
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On January 7, 2026, KeyBanc issued a downgrade of Cleveland-Cliffs to Sector Weight from Overweight, citing valuation concerns after the stock’s rapid run-up — shares have ratcheted up over 47% in the past six months. The firm’s view is that much of the earlier upside is now in the price, limiting further gains absent new catalysts.
From a cost and margin perspective, KeyBanc points to higher unit costs tied to a richer product mix (e.g., more automotive steel and finished steel), as well as upcoming challenges including the expiration of a slab supply contract with ArcelorMittal at the end of 2025, which may compress margin in 2026. Steel pricing is also seen as lagging.
Free cash flow is forecast to be constrained in the near term. KeyBanc notes that despite certain positive developments—non-core asset sales, gains in liquidity, and potential interest savings—cash flows will remain under pressure until pricing, cost, and contract headwinds are managed.
On sector dynamics, KeyBanc maintains a constructive outlook into 2026 for the U.S. carbon steel industry: demand is expected to be flat in 2025 with ~1% growth in 2026, influenced by import reductions and improving mill utilization (approaching ~80%). Inventory and distributor activity are also expected to support the demand cycle. Steel Dynamics, Reliance, and Commercial Metals are named as likely beneficiaries under improving pricing/mix, though the analyst flags risk of increased supply in 2026 that could suppress rebar pricing and similar segments.
Strategic implications for investors: CELE need to assess whether any upcoming catalysts—POSCO JV, non-core asset sales—can meaningfully unlock value or offset cost pressures. The loss of the ArcelorMittal slab contract in particular represents a measurable earnings risk. Also, evaluating leverage levels, liquidity needs, and free cash flow trajectory in light of large debt (≈ $8B+) will be crucial.
Open questions remain around the specifics and timing of the POSCO deal, the slope of steel price recovery, the ability to control costs given mix shifts, and the degree to which demand in 2026 materializes as projected. Given the valuation reset, upside seems limited under base‐case assumptions, making downside risk more relevant unless new information emerges.
Supporting Notes
- KeyBanc downgraded CLF to Sector Weight from Overweight, saying recent share price gains have moved past its prior $13 price target.
- Shares have gained more than 47% over the past six months.
- Forecasts hot-rolled coil steel to be $880/ton in 2026, up from earlier expectations.
- The company’s contract to supply slabs with ArcelorMittal lapses at the end of 2025, which is expected to hurt volumes/margin.
- Free cash flow is expected to remain under pressure near term.
- Cost pressures due to richer product mix and lagged steel pricing.
- KeyBanc views non-core asset sales, strengthened liquidity, and a potential JV with POSCO as upside catalysts.
- Sector demand seen flat in 2025, improving by ~1% in 2026, supported by lower imports and ~80% mill utilization.