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By Ben Levisohn

An article in American Metal Market yesterday (unfortunately behind a paywall) highlighted the fact that U.S. Steel (X) could be a player as Cliffs Natural Resources (CLF) attempts to renegotiate two new contracts with ArcelorMittal (MT). Axiom Capital’s Gordon Johnson has the details:

Reuters

As we have warned for some time now, US Steel (X; SELL) is now aggressively pursuing the two contracts Cliffs is in the process of renegotiating with Arcelor Mittal (MT; NC)…With lower pellet making costs versus Cliffs, and 6Mt of capacity U.S. Steel is not using at its Keetac pellet plant, as well as 5-10Mt of spare capacity at its Minntac plants and JV interests (keep in mind that while Keetac is down, it can be ramped in just a few weeks if necessary), we see Cliffs’s current positioning for the Mittal contracts as much more volatile than what the lion’s share of market prognosticators are currently factoring in.

With even the “bulls” now onto this risk, we feel it could further permeate (or, better stated, be underwritten into Cliffs’ shares) the price which investors are willing to pay for Cliff imminently.

No one seems to worried yet. Shares of Cliffs Natural Resources have gained 4% to $4.90 at 9:36 a.m. today, while U.S. Steel has advance d2.1% to $20.46, and ArcelorMittal has risen 4.3% to $6.12 after getting upgraded to Buy from Hold at Jefferies.