Iron ore and steel mining stocks are on sale today for a reason. Since April, Cleveland-Cliffs (CLF) fell into a downtrend and closed at $11.99. Investors are pricing in the risks of Cliffs acquiring Stelco.
On August 13, Cliffs upsized its $600 million Notes sale due in 2032. This debt will pay 7.0%. Markets are avoiding firms that are not paying down their debt, which is expensive to maintain amid high interest rates.
The Federal Reserve’s expected rate cut will not help indebted companies by much. Unless rates fall by at least 75 bps, CLF stock risks falling further. Any post-rate cut rally will prove short-lived. Still, Cliffs will manage its supply as the down cycle in steel prices continues. That would limit losses.
US Steel (X) lost 17.47% on Wednesday. Markets are bracing for the firm to become stuck in political motivations. Media is reporting that President Joe Biden is preparing to block the Nippon Steel (NPSCY) deal. The government is citing national security as a reason for denying the deal. Still, US Steel does not have any supply contracts with the U.S. Department of Defense.
On Monday, Vice President Kamila Harris said that U.S. Steel should not fall under foreign ownership.
Be wary of metal stocks. The economy is showing signs of slowing. This would hurt US Steel stock.