- KeyBanc downgraded Cleveland-Cliffs to Sector Weight on Jan. 7, 2026, saying the stock has run past its prior $13 target and looks fully valued.
- The firm sees near-term headwinds from higher unit costs, the expiration of a slab supply contract with ArcelorMittal, and pressured free cash flow.
- Upside drivers like auto contract wins, improved liquidity, non-core asset sales, and a potential POSCO partnership are viewed as largely priced in.
- At roughly 11x 2026 EV/EBITDA, KeyBanc argues downside risk now outweighs upside absent new catalysts.
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KeyBanc’s downgrade of Cleveland-Cliffs reflects a recognition that much of the stock’s previous upside has already been realized. Shares rose over 47% in the six months leading up to January 2026, putting them past the brokerage’s earlier $13 target. With current valuations consistent with or exceeding projections, the margin for further appreciation is limited unless new positive developments emerge.
While future catalysts—such as the potential partnership with POSCO, non-core asset disposals, and auto market share wins—remain material, KeyBanc warns that they are already partly reflected in current prices. Additionally, rising costs due to product mix shifts and contract lapses (e.g., with ArcelorMittal) add countervailing risk.
Free cash flow emerges as a key metric under pressure; the brokerage expects near-term FCF to remain constrained, even as longer-term sector fundamentals in U.S. carbon steel strengthen. Steel demand is forecast to be flat in 2025 with modest growth in 2026, supported by lower imports and rising mill utilization.
Strategically, management of Cleveland-Cliffs now faces a crucial balancing act: delivering on promised asset sales and contract wins while tightly controlling costs. Any delays or underperformance in these areas could validate the valuation concerns. Investors need clear milestones and forward-looking disclosures—particularly on POSCO, fourth-quarter results, and cost trajectories—to re-assess the risk-reward profile.
Supporting Notes
- KeyBanc lowered its rating from Overweight to Sector Weight on January 7, 2026, citing that the stock had exceeded its prior $13 price target.
- Shares had gained more than 47% over the prior six months, placing much of the upside in the stock already realized.
- Near-term free cash flow is expected to remain under pressure due to higher unit costs and lapsing of a slab supply contract with ArcelorMittal at the end of 2025.
- Trading multiple is approximately 11x EV/EBITDA based on 2026 estimates; with asset sales this could be about 10x; pension obligations could add further adjustments.
- Positive developments like auto contract wins, stronger liquidity, non-core asset sales, and a potential POSCO deal are underway but considered largely priced in.
- The U.S. carbon steel sector is expected to see flat demand growth in 2025, with near-1% growth in 2026, helped by lower imports and mill utilization nearing 80%.