February 9, 2017
Cliffs Profits Bounce Back with Iron Ore Demand
by John Myers
Duluth News Tribune
Cliffs Natural Resources, the nation's largest supplier of taconite iron ore, rode the recovering domestic steel industry back to profitability in 2016, posting a net income of $199 million compared to a net loss of $748 million in 2015.
The Cleveland-based company on Thursday announced its revenues were $754 million last year, up 58 percent over a crippling 2015.
In the fourth quarter of 2016, Cliffs recorded a net income of $81 million, up from a net loss of $58 million for the last quarter the year before, according to the company's quarterly report issued Thursday.
The company sold 6.9 million tons of taconite in the final quarter of 2016, a 53 percent increase over the same period in 2015, “a result of improved steel market conditions driving increased pellet demand and new customer’’ contracts, the company said in its report.
CEO Lourenco Goncalves predicted Thursday that the domestic steel and iron ore industries will continue to improve in 2017, noting the price of hot rolled steel has jumped from $490 per ton to $630 per ton over the past three months — showing demand is up even as production increases.
Cliffs credited tough U.S. sanctions on foreign government-subsidized steel that regulators agreed was being “dumped’’ below cost into the country. With that flow of foreign steel slowed, demand for U.S.-made steel increased, and so did demand for its basic ingredient — taconite iron ore.
The company raised its projected 2017 revenues from $530 to $850 million based on improved sales, projecting sales of 19 million tons of Minnesota and Michigan taconite, a hefty increase over 2016.
That Cliffs has bounced-back is no surprise to most Northlanders who had watched the company's operations slow and even close in 2015, with hundreds of workers laid off, and then reopen and return to near full production last year — including NorthShore Mining in Silver Bay/Babbitt and United Taconite in Eveleth/Forbes. The company also operates and is part owner of Hibbing Taconite and owns and operates the Tilden operations in Michigan’s Upper Peninsula.
Goncalves on Thursday said his company is in solid shape to withstand any pressure from a potentially revived Magnetation iron ore operations or even the completion of the former Essar Steel Minnesota project, saying he has locked-up contracts for several years, namely with AK Steel, ArcelorMittal and Algoma Steel — all companies that Magnetation and Essar had hoped to sell to. Goncalves said he’s also landed another new customer, ArcelorMittal Canada.
Goncalves also said the reopening of Keetac operations in Keewatin by U.S. Steel won’t impact his company's production even though U.S. Steel said it planned to sell Keetac’s production on the open market, not use it in its own steel mills, at least in the short term.
“I’m having a hard time trying to determine where U.S. Steel is going to sell those pellets,’’ Goncalves said.
Goncalves, who wasn’t shy about opposing Donald Trump as a presidential candidate, on Thursday said Trump’s “America first’’ trade policies will help his company in 2017.
“President Trump delivers a message that’s positive for Cliffs… and our customers, domestic steel mills,’’ Goncalves said, adding that 2017 “will be a good year for Cliffs.”
Cliffs’ stock price has made a remarkable resurgence of late, following its sales and profits, hitting $10.66 per share Thursday morning, up from $9.52 on Wednesday and a low of $1.67 early in 2016. (It’s still nowhere near the $80 per share seen in 2012 before the global iron ore market crashed in 2014.)
Iron ore prices have indeed rebounded globally, nearly doubling from just over $40 one year ago to about $80 today. While U.S. iron ore demand is less tied to the global market, which is dominated by China, it does impact sales for companies like Cliffs that sell all of their product to other companies rather than using it in their own steel mills.
“We finally have sanity back in the seaborne iron ore market,’’ Goncalves told industry analysts during Thursday’s financial report conference call.
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