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How Cliffs Is Faring as Seaborne Iron Ore Prices Trend Lower

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Iron ore prices trending lower in 2017

Iron ore prices finished 2016 with a surprise 80% increase as most market participants were calling for a downside. The trend continued as 2017 began with iron ore prices pushing close to $95 per ton in February, which was a 30-month high. However, iron ore prices have been trending lower since then. They ended 1Q17 closer to $80 per ton. Inventories at Chinese ports have been increasing as doubts persist over the slowing Chinese government stimulus, leading to weaker demand. Along with robust supplies, these factors have begun to take a toll on iron ore prices.

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Cliffs’s underperformance in 1Q17

The stock gains in most iron ore miners, such as BHP Billiton (BHP) and Rio Tinto (RIO), have been muted year-to-date. Vale SA (VALE) has, however, gained 25% in 1Q17, but that’s more because of company-specific factors such as the start of the S11D project and the decision to merge its share classes.

Seaborne iron ore prices outlook

After significantly outperforming other iron ore miners (XME) in 2016, Cliffs Natural Resources (CLF) underperformed in 1Q17. Its stock price fell 2.4% in 1Q17 after rising an impressive 404% in 2016. One factor is the question over President Donald Trump’s infrastructure plans and his ability to follow through other business-friendly plans. Another factor is the recent weakness in the seaborne iron ore prices. Analysts have been calling for this correction for a long time, and they expect iron ore prices to correct even more going forward.

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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