On the surface, the steel industry seems pretty simple (make steel, sell it). But underneath, there are a lot of moving parts -- which is why investors shouldn't be too downbeat about Cleveland-Cliffs' (NYSE: CLF) weak first-quarter results. Management is very confident that the rest of the year will turn out pretty well. Here's what's going on.

Cleveland-Cliffs makes heavy use of blast furnaces. That's an older technology that involves massive steel plants. They need to run at high utilization rates in order for the steel mill to make money. That fact runs headlong into the cyclical nature of the steel sector, since demand for steel rises and falls along with economic activity. When times are good, Cleveland-Cliffs can make a huge amount of money. When the economy cools, low utilization rates can lead to red ink.

Image source: Getty Images.

Continue reading

Source Fool.com