uploads///USIO Price Realizations

US Realized Prices Look Bright for Cleveland-Cliffs in 2018

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Jan. 30 2018, Updated 10:33 a.m. ET

US realized prices

As we discussed in the previous part of this series, realized prices along with volumes drive a company’s revenues. Cleveland-Cliffs’ (CLF) US Iron Ore’s (or USIO) segment’s realized revenues are influenced by customer demand for iron ore pellets.

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Realized revenues

Cleveland-Cliffs’ realized revenues during 4Q17 came in at $83.4 per ton, which represented an increase of 13% year-over-year (or YoY). The realization was 8% lower sequentially mainly due to the reduction in nomination from one of its major customers.

Future expectations for realizations

Based on the performance to date of iron ore, US hot-rolled coil (or HRC) steel and Atlantic pellet premiums and assuming that these levels persist for the rest of the year, the company expects a substantial improvement in price realizations in 2018. Cliffs has, however, warned that these expected realized revenue ranges should not be construed as guidance, as they do not reflect its internal view on pricing.

So, with a $77 per ton iron ore price, a $675 per ton US HRC price, an Atlantic pellet premium of $58 per ton, and holding all other assumptions constant, the company expects US realizations to be in the range of $97 and $102 per long ton. This full-year expectation is including the first quarter expected realization of $75 per long ton. CLF’s first quarter realizations are usually lower due to negative carryover effects and unfavorable customer mix due to rail only delivery.

Higher future realizations for Cleveland-Cliffs is a positive read-through for US steelmakers (SLX) including AK Steel (AKS), Nucor (NUE), U.S. Steel (X), and ArcelorMittal (MT).

In the next part of this series, we’ll discuss Cleveland-Cliffs’s Asia-Pacific division.

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