US imposes 50% tariffs on steel derivative products to curb evasion

CLEVELAND - The U.S. Department of Commerce has implemented 50% tariffs on steel content in electrical steel laminations, cores, and certain stainless steel automotive exhaust parts under Section 232 measures, effective Monday.

The decision targets what Cleveland-Cliffs Inc. (NYSE:CLF), currently trading at $10.41 with a market capitalization of $5.15 billion, described as tariff circumvention schemes involving derivative products using steel melted and poured outside North America but processed through Mexico and Canada. According to InvestingPro analysis, the company’s stock is currently trading near its Fair Value, while facing operational challenges with negative EBITDA in the last twelve months.

"This practice, which has been accepted and supported by both Canada and Mexico -- despite its inherent conflict with the original intent of the USMCA trade agreement -- has ultimately turned into a blatant tariff evasion subterfuge," said Lourenco Goncalves, Cleveland-Cliffs’ Chairman, President and CEO, in a press release statement.

The Commerce Department’s action follows a determination under its new Section 232 tariff inclusion process. The measure aims to close a loophole where manufacturers could avoid steel tariffs by importing partially finished products.

Cleveland-Cliffs, a North America-based steel producer focused on value-added sheet products, particularly for the automotive industry, operates stainless steel facilities in Coshocton and Mansfield, Ohio, and electrical steel operations in Butler, Pennsylvania, and Zanesville, Ohio. InvestingPro data reveals the company faces significant challenges, with a weak gross profit margin and rapid cash burn. Discover 8 more exclusive ProTips and comprehensive financial analysis in the Pro Research Report, available to subscribers.

The company stated the tariff decision provides certainty that the American domestic market will not be undercut by unfairly traded steel embedded in derivative products, allowing continued investment in its U.S. operations that support domestic manufacturers of automobiles, appliances, and electrical transformers. With a current ratio of 2.04, InvestingPro analysis shows the company maintains strong liquidity to support its operational needs, despite facing industry headwinds. Get deeper insights into CLF’s financial health and future prospects with the comprehensive Pro Research Report, featuring expert analysis and actionable intelligence.

The steel producer employs approximately 30,000 people across operations in the United States and Canada.

In other recent news, Cleveland-Cliffs has secured multiyear fixed-price contracts with several U.S. automakers to supply standard sheet steel. This development marks a departure from the company’s usual one-year agreements, offering a more stable revenue stream for the steel producer. Additionally, Cleveland-Cliffs reported stronger-than-expected second-quarter EBITDA of $97 million, surpassing consensus expectations of an EBITDA loss, indicating solid operational performance and cost management.

Analysts have taken note of these developments, with KeyBanc upgrading Cleveland-Cliffs’ stock rating to Overweight, citing improved cost and efficiency performance. Jefferies also raised its price target for the company from $7.25 to $11.00 while maintaining a Hold rating. Meanwhile, Wells Fargo initiated coverage of Cleveland-Cliffs with an Equal Weight rating, supported by a constructive view on sheet prices and a richer product mix.

These recent developments highlight Cleveland-Cliffs’ strategic moves and operational successes, drawing attention from major financial institutions.

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