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Cleveland Cliffs (NYSE:CLF) surged 20% on Friday after President Trumps surprise announcement of a 50% tariff on imported steel, as investors bet the move would bolster domestic margins.
Trump visited a U.S. Steel plant in Pennsylvania to tout the tariff hikeeffective this weekand to rally support for the $14 billion US SteelNippon Steel deal.
He vowed no layoffs or outsourcing and promised blast furnaces would run at full capacity for at least a decade. While US Steel and Nucor (NYSE:NUE) also saw gains, it was CLF that led the pack, propelled by its vertically integrated asset base and a diversified customer roster that spans automotive, aerospace, and construction.
Goldman Sachs analysts warn that U.S. steel futures should rally on the tougher duties, but spot prices may not immediately reflect the change given still-high U.S. steel inventories, lackluster demand and a relatively low import requirement. They also caution that higher steel costs could eventually dampen downstream manufacturing activity.
For CLF, which already benefits from captive iron-ore operations, the tariff promises near-term pricing power but also underscores the risk of slower automotive and construction orders if domestic steel becomes too expensive.
Investors should care because a sustained 50% duty creates an unusually wide spread between U.S. and global steel pricespotentially driving CLFs EBITDA higher in the near termwhile reigniting scrutiny over tariff-driven inflation in industrial end markets.
With U.S. factory-orders data due next week and auto build rates already soft, markets will watch whether CLFs tariff-fueled rally can hold as Q2 volume growth comes into focus.
This article first appeared on GuruFocus.