uploads///Iron ore prices

How Long Can Seaborne Iron Ore Prices Support Cliffs Stock?


Mar. 8 2017, Updated 7:36 a.m. ET

Iron ore prices begin on a positive note

Iron ore prices finished 2016 with a rise of more than 80.0%. The average for seaborne iron ore prices in 2016 was $58.50 per ton, but the consensus called for a further downside.

Iron ore prices started 2017 on a very positive note. Benchmark iron ore prices reached $92.23 per ton on February 13, 2017, the highest level since August 2014. Iron ore companies such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE) saw positive share price movements due to strong iron ore prices.

Chinese trade figures continued to come in strong in January 2017. Chinese iron ore imports were also strong during the month.

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What Cliffs’s CEO said

As we’ve already seen, Lourenco Goncalves, Cliffs Natural Resources’ (CLF) CEO (chief executive officer), was very positive about prospects for US steel prices. He’s equally upbeat on the future of iron ore prices in 2017.

The company assumed a January 2017 average seaborne iron ore price of $81 per ton for its EBITDA (earnings before interest, tax, depreciation, and amortization) in 2017. Goncalves expects seaborne iron ore prices to “at least” continue throughout the year. In comparison, the average iron ore price (COMT) for 2016 was close to $59 per ton.

During Cliffs’s 4Q16 earnings call, Goncalves said, “We finally have sanity back in the seaborne iron ore market. I truly commend Rio Tinto and Vale for eliminating their reckless behavior that had infected the market for a number of years and destroyed several billions of dollars in equity value.”

How’s the outlook?

With 2016 behind us, you might be wondering if 2017 can sustain iron ore’s gains along with the gains of miners. Of course, there are many factors that affect seaborne iron ore prices. The most significant of them is supply growth and demand from China, which consumes more than two-thirds of seaborne iron ore.

In the next few parts, we’ll look at the seaborne iron ore industry’s 2017 outlook and see how its supply and demand could play out in 2017. That should give us a clue about the future direction of iron ore prices and the impact on Cliffs Natural Resources.


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