Investing.com -- Morgan Stanley downgraded Cleveland-Cliffs to Equal-weight from Overweight, arguing that a supply-driven rally in U.S. steel prices is nearing its peak and that much of the benefit from elevated prices is already reflected in steel equities.

The brokerage raised its near-term steel price forecasts after U.S. hot-rolled coil (HRC) prices climbed to about $1,140 per short ton, supported by tight domestic supply, longer mill lead times and higher import costs linked to Middle East disruptions. However, it expects additional domestic production and rising imports to eventually ease the market, leading prices lower in 2027 and 2028.

Morgan Stanley increased its price target on Cleveland-Cliffs to $12.50 from $12.00 but said the stock's roughly 50% rally since early April has left a more balanced risk-reward profile. The firm expects higher steel prices to support earnings in the near term but believes upside is limited relative to peers.

The bank now forecasts average HRC prices of $1,112 per ton in 2026, $1,012 in 2027 and $900 in 2028, compared with previous estimates that were materially lower. It expects prices to remain elevated through the second half of 2026 before moderating as supply conditions normalize.

Among North American steel producers, Morgan Stanley maintained an Overweight rating only on Commercial Metals Company, citing what it sees as overly discounted concerns around new rebar supply. The firm kept Equal-weight ratings on Nucor and Steel Dynamics while raising their price targets to $258 and $270, respectively.

Morgan Stanley also lifted its earnings forecasts across the sector to reflect stronger steel pricing, while cautioning that profitability is likely near a cyclical peak and could decline after 2027 as steel prices retreat from current levels.