Morgan Stanley cut shares of steelmakers U.S. Steel (X) and Cleveland-Cliffs (NYSE:CLF) to Equal-Weight from Overweight in a note Thursday, with the firm noting only modest steel demand growth this year.
Analysts at the firm explained that their analysis points to a modest 2.1% steel demand growth in 2024, which, combined with rising capacity, will lead to declining prices.
Morgan Stanley raised its price target for X to $51 from $40 and also removed it as a top pick.
The analysts said that while they still believe in the merits of US Steel's growth projects, they no longer see a meaningful upside to their new price target following the conclusion of the company's strategic review process and the $55 per share bid from Nippon Steel.
For CLF, the firm lowered the price target to $20 from $21.50.
Morgan Stanley continues to believe that CLF will post a healthy FCF yield in the coming years, as the company has no major capital expenditure projects.
However, they note CLF has the highest exposure to the automotive sector among their North American steel coverage and expect this end-market to lag this year, following a strong performance in 2023.
"After a ~23% run up since the start of 4Q23, supported by a series of successful price hikes and management announcing a refocus on share buybacks, we no longer see meaningful upside to our new price target," the analysts wrote.