What’s Driving Cliffs Natural Resources’ US Volumes?



US iron ore volumes

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

Cliffs Natural Resources’ (CLF) USIO (US Iron Ore) segment mainly sells iron ore to integrated steel companies in the United States and Canada. Those companies include AK Steel (AKS) and ArcelorMittal (MT). Now let’s analyze Cliffs’s US volumes and how they could progress going forward.

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Bad times

USIO’s volumes suffered in 2015 and 2016 due to low-priced steel (SLX) dumped into the US domestic market. In 2015, Cliffs idled its United Taconite and Northshore mines due to weaker order books and low capacity utilizations.

Steelmakers such as Commercial Metals (CMC), Posco (PKX), Tenaris (TS), ArcelorMittal (MT), and United States Steel (X) were crying foul over what they claimed to be unfairly traded steel products.

Changing fortunes

In 2016, circumstances started changing for these steelmakers. Trade cases ensured high tariffs on imported steel, thereby protecting domestic steelmakers from subsidized, dumped steel products. Cliffs reopened its mines, with United Taconite opening two months before expected. Anti-dumping duties started having an impact.

Cliffs has already increased its production and sales guidance for 2016. Its sales guidance now stands at 18.0 million tons, a rise of 0.50 million tons from its original guidance of 17.5 million tons. It increased its production guidance 0.50 million tons to 16.5 million tons.

President-elect Donald Trump’s stand on protectionism is well known. With the protection of the sector from illegal and subsidized imports, steelmakers’ order books should benefit, which will help Cliffs’s volumes.

The company’s management said during the 3Q16 earnings call that Cliffs will start receiving nominations for 2017 in the fourth quarter. If customers are more confident with a higher sales outlook in 2017 and beyond, Cliffs’s volumes could see an upside. Currently, the company is comfortable with its preliminary 2017 sales volumes forecast of 19.0 million tons.


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