Morgan Stanley's revision of Cleveland-Cliffs Inc. (NYSE: CLF) sent the steel producer's shares lower in premarket activity on Monday, after analyst Carlos De Alba shifted the rating from Overweight to Equalweight and set a $12.50 price target.
The change in recommendation comes even as Morgan Stanley raised its projections for hot-rolled coil - a benchmark steel product - arguing the recent rally in prices is driven by supply factors. The firm expects HRC prices to stay elevated through the second half of 2026 before facing downward pressure in 2027 and 2028 as domestic output and imports catch up with demand.
De Alba explained the rationale in a research note, writing that anticipated high steel prices appear to be reflected already in equity valuations and that this underpins the downgrade to Equalweight. The note reiterated the firmxpectation that HRC will be $1,200 per short ton in both the third and fourth quarters of 2026 - figures raised meaningfully from the prior estimates. Morgan Stanley's averages for HRC were lifted to $1,112 per short ton for 2026, $1,012 for 2027, and $900 for 2028.
Cleveland-Cliffs has seen a substantial run-up in its share price since April 1, with the stock rallying approximately 50% amid an improved outlook for domestic steel costs. Morgan Stanley linked that improvement to supply constraints and to higher import prices and reduced availability of foreign material stemming from the Middle East conflict, factors that have supported domestic pricing.
Although the research team raised its target on Cleveland-Cliffs from $12.00 to $12.50, the analyst noted the stock now presents a more balanced risk-reward profile, placing it in line with peers rated Equalweight such as Steel Dynamics and Nucor. Morgan Stanley retained Commercial Metals as its sole Overweight-rated steel company in North America.
The note also identified clear contingencies that could produce outperformance for Cleveland-Cliffs: the company could outperform if it secures a favorable agreement with POSCO under a previously announced memorandum of understanding, or if steel prices remain elevated for longer than Morgan Stanley currently anticipates.
Context and market reaction
The downgrade coincided with a drop in CLF shares in premarket trading, where the stock declined about 2.4% following the note. Morgan Stanley's adjustment underlines a view that the recent run-up in steel names already embeds much of the anticipated benefit from high commodity prices.
Investors and market participants will likely watch developments around POSCO negotiations and future steel price trajectories closely, since either outcome could shift the company's relative valuation among its peer group.