uploads///US_Sales Volumes

What Will Drive Volumes for Cliffs’ US Division in 2016 and Beyond?


Aug. 3 2016, Updated 9:07 a.m. ET

US iron ore volumes

A company’s shipped volumes usually depend on demand from end consumers and adjustments to its production profile. This is one of the functions, along with realized prices, of a company’s revenues.

Cliffs Natural Resources’ (CLF) US Iron Ore (or USIO) segment mainly sells iron ore to integrated steel companies in the United States and Canada. The companies include AK Steel (AKS) and ArcelorMittal (MT). In this article, we’ll analyze Cliffs’ 2Q16 USIO volumes.

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USIO volumes

  • USIO’s pellet volumes were 4.1 million long tons in 2Q16, which is a decline of 2.3% year-over-year and an improvement of 117% quarter-over-quarter (or QoQ).
  • The QoQ improvement was expected mainly due to seasonal weakness in 1Q16.
  • The year-over-year decline was mainly due to the termination of a customer contract which was offset to a large extent by a new customer contract.
  • During the call, the company mentioned that it’s now moving product on the lakes at full stride after winter.

Volume guidance

  • Management mentioned that it expects to ship 5.5 million long tons in the third quarter of 2016 with the remaining 6.5 million tons in the fourth quarter to reach its guided 18 million tons for 2016.
  • Previously, Cliffs had guided for 17.5 million tons from USIO. The increase is mainly reflective of additional sales to US Steel Canada.
  • The guidance for production, however, is lower at 16.5 million tons as 1.5 million tons of inventory is worked through.

Management expectations

While replying to a question, the management mentioned that the expected volumes for USIO for 2017 are 19 million tons. This is the installed capacity for the company going into 2017 as Empire mine life ends.

The Materials Select Sector SPDR ETF (XLB) is an alternative way to play the materials space. Currently, Nucor (NUE) forms 2.8% of XLB’s portfolio.

After having looked at the volumes in the USIO, let’s focus on the realized prices in this division.


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