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Cliffs Natural Resources and the Outlook for Seaborne Iron Ore Prices

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Iron ore’s roller coaster ride

After falling almost 40% to touch $57 per ton in June from $95 per ton in February, iron ore prices have remained stable in the $63–$65 per ton range since the end of June. Until February 2017, iron ore prices were moving in tandem with steel prices, after which they decoupled.

The ever-increasing port inventories in China and concerns of a slowdown in China’s property market put downward pressure on iron ore.

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Cliffs Natural Resources’ underperformance

Mining giants such as BHP Billiton (BHP), Vale SA (VALE), and Rio Tinto (RIO) garner most of their revenues and earnings from iron ore. Due to weakness in this steelmaking (XME) ingredient in 2017, these miners’ stock prices have also been weak. BHP Billiton, Vale SA, and Rio Tinto have gained 3.9%, 14.0%, and 13.1%, respectively, year-to-date until June 6, 2017.

However, Cliffs Natural Resources has been the worst performer among its peers in terms of stock price. CLF has fallen 20% year-to-date.

Seaborne iron ore price outlook

While a majority of Cliffs Natural Resources’ (CLF) revenues are tied to legacy contracts in the US, seaborne iron ore prices have a great bearing on its stock prices. One of the components in determining the pricing of its contracts is seaborne iron ore prices. CLF’s Asia-Pacific Iron Ore division has direct exposure to the seaborne iron ore trade.

Because the iron ore price outlook is so important for Cliffs Natural Resources, we’ll discuss some indicators to better understand this metric.

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