Supply-Driven Rally Has Limited Upside; Downgrade CLF to EW

Research evidence excerpt

Supply-Driven Rally Has Limited Upside; Downgrade CLF to EW

IdeaMon an improving outlook for local steel prices given domestic supply constraints and

the Middle East conflict increasing the price and limiting availability of imported

material. We raise our CLF PT to $12.5/sh, but we now see a more balanced risk-

reward in CLF shares, in line with EW-rated peers STLD and NUE. CMC is our only

OW rated steel name in North America as we believe market concerns with new

rebar supply are overly discounted in the stock. Moreover, we believe profitability

will peak in 2027 and lower our target multiples for all steel equities to account for

our view that we are at or near peak earnings.

Where we could be wrong. To the upside, if CLF-POSCO reach a good deal under

the previously announced MoU that helps more rapidly/materially alleviate CLF's

balance sheet constraints without the company giving up significant earnings /

diluting shareholders, we'd expect shares to move closer to our $20/sh bull case.

Moreover, if steel prices remain elevated for longer than we forecast or overshoot

our estimates to the upside in the near term (2H26e HRC at $1,200), we'd also

expect CLF shares to outperform peers given the company's operating and financial

leverage. On the downside, we'd expect shares to underperform peers if HRC prices

fall quicker than we forecast as the supply picture loosens or if the company

struggles to reduce steelmaking costs. In addition, USW labor negotiations are

scheduled for later this year and any potential labor strikes from CLF's workforce

would cause shares to underperform.

Morgan Stanley & Co. International plc, Seoul Branch (“Morgan Stanley”) is acting as

financial advisor to POSCO Holdings Inc. ("POSCO") in relation to the proposed