Futures Falling; Cliffs Plunges 13%

Futures for the Standard & Poor’s 500 and Dow Jones Industrial Average are down about 0.4% this morning, ahead of Wednesday’s bell. The S&P closed yesterday within just a couple of points of its all-time high.

Shares of Cliffs Natural Resources (CLF) are tumbling, down as much as 13% in premarket action. The stock was downgraded this morning by Morgan Stanley, and its price target cut to $14 a share (it closed at $21.43 on Tuesday).

We believe Cliffs� key US iron ore business (~60% of 2012 EBITDA) will be halved in coming years as new Great Lakes supply cuts into volumes and pricing.More bad news to be priced in:�CLF stock has dropped ~44% YTD on deteriorating operational outlook (especially for Bloom Lake) and a surprise dividend cut and equity/convertible preferred raise. We see further downside as two issues are not priced in by the market:1) Deteriorating US iron ore market balance:�We believe that the supply-demand balance in the isolated Great Lakes pellet market will deteriorate as up to ~13 mt of new supply comes online over the next ~3 years in a ~60 mt market. As the only non-steelmaking producer in the region, we believe CLF will be most impacted. US Iron Ore segment EBITDA could halve vs. 2012 levels.2) Reserve depletion:�The company�s Asia-Pacific Iron Ore segment will deplete its reserves in ~6 years.

As if that wasn’t bad enough, analysts at Credit Suisse lowered their target price for the stock to $10, writing:

We believe that there are structural changes taking place in CLF�s key Great Lakes market that will compromise its pricing power and erode the earnings potential of the US Iron Ore business.

It wasn’t all bad for Cliffs, though: Goldman Sachs raised their rating to Neutral, based largely on the stock’s valuation. I’ve written about Cliffs before; the stock is one of the worst performers of the year, down 44% in 2013 — and that’s before a likely big drop today.

Shares of Boeing (BA) are down about 0.6% ahead of the bell. A Reuters report suggests the 787 Dreamliner may face hurdles even if it passes new safety tests and is permitted to return to the sky.

Aviation experts and government officials say the Federal Aviation Administration may shorten the permitted flying time of the 787 on certain routes when it approves a revamped battery system. The plane was grounded worldwide two months ago after lithium-ion batteries overheated on two separate aircraft.

Losing extended operations, or ETOPS, would deal a blow to�Boeing�and its airline customers by limiting use of the fuel-saving jet, designed to lower costs on long-distance routes that don’t require the capacity of the larger Boeing 777. Such a loss could even lead to cancellation of some routes.

Also falling are shares of Apollo Group (APOL), parent of the for-profit University of Phoenix, which are down 3.5%. The stock fell 2.7% yesterday and is down 40% in the past six months.