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What Led Cliffs to Increase Its Realized Revenues for US Iron Ore?


Nov. 16 2015, Updated 2:04 a.m. ET

Lower realized revenues

Cliffs Natural Resources’ (CLF) realized revenues from USIO (or US iron ore division) were lower than expected. USIO reported revenue realization of $76.50 per ton in 3Q15 compared to $100.70 per ton in 3Q14.

Average realized prices were negatively affected to an extent of $24.20 per ton year-to-date. This is mainly due to lower hot-rolled prices in the United States (SPY) (IVV), which in turn affects US steelmakers, including Nucor (NUE), U.S. Steel Corporation (X), Steel Dynamics (STLD), and Arcelor Mittal (MT). Currently, Nucor forms 0.33% of the iShares Core High Dividend ETF (HDV).

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Increased realized revenue guidance

Cliffs has increased its USIO realized pricing guidance by $5 per ton for when seaborne iron ore prices are within $55–$60 per ton to $80–$85 per ton. This is mainly due to the improved customer mix, which generated a benefit of $4 per ton. Some of the gains are offset by the lower hot-rolled coil (or HRC) price assumptions. Cliffs’ mid-point assumption for HRC prices was $502 per ton at the end of 2Q15, which has now declined to $489 per ton.

Cash cost reduction

The cash production cost per ton for 3Q15 was $49—down 16% from $58.40 in the same period last year. This decline is despite the reduced tonnage. Cliffs’ management mentioned that it’s not optimizing mine plans and realizing procurement savings through relationships with its vendors. The operations team used their expertise to keep capital expenditure requirements down for predictive maintenance.

Cost outlook intact

Despite lower volumes, Cliffs’ management maintained its guidance for the cost of goods sold at $60–$65 per ton. These costs include expected idle costs.

Cliffs forms 3% of the SPDR S&P Metals and Mining ETF (XME).


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