What happened
Shares in steelmaker Cleveland-Cliffs (CLF -1.24%) surged a remarkable 44.1% in March, according to data provided by S&P Global Market Intelligence.
The move comes as steel and iron ore prices surged due to the war in Ukraine. Both Russia and Ukraine are major steel exporters, and the lack of supply from those countries is likely to impact the industry on an extended basis. Moreover, the sanctions against Russia won't end anytime soon, and there's a large steelworks in Mariupol in Ukraine, which is one of the epicenters of the conflict. Everything points to the possibility of an extended impact. As such, supply disruptions in the industry could last, and end-market customers are likely to start looking around for alternative suppliers.
Image source: Getty Images.
Cleveland-Cliffs stands relatively well placed, in this environment, due to its position as a fully integrated player in the market. That means the company not only provides raw materials (iron ore and pellets), but it's also producing steel. Cleveland-Cliffs is the largest flat-rolled steel producer in the U.S.
The integrated model puts it in a good position because, as a steelmaker, it benefits from high steel prices. But as a raw materials producer, its steelmaking operations are insulated from high raw material prices. Cleveland-Cliffs can provide its own supply, unlike steelmakers who buy raw materials from external suppliers.
It looks like management's big bet on becoming an integrated supplier by acquiring steelmaking businesses has paid off.
So what
The company is likely to do very well, but it's tough to predict where steel prices will be heading next. Tightness in supply is one thing, but there's also the question of demand. Any slowdown in the economy, possibly caused by the same high commodity prices benefiting Cleveland-Cliffs right now, could cause a slowdown in demand.
Moreover, it's worth noting that the stock has come a long way in a short time, and it still operates in a highly cyclical industry.
Now what
Investors will have to keep an eye on steel prices and demand trends. Cleveland-Cliffs stands to do very well if the global economy walks the tight line of maintaining growth while absorbing rising inflation. However, any challenge to that scenario could change the sentiment for the stock.
