US iron ore volumes
US iron ore (or USIO) is the main driver for Cleveland-Cliffs’ (CLF) top and bottom lines. Volumes and realized prices drive the top line.
US steel demand drives USIO volumes
Cleveland-Cliffs (CLF) reported volumes of ~5.4 million long tons for its USIO division for 4Q17. The volumes in the latest quarter reflect a year-over-year (or YoY) decline of 22%. There were two main reasons for this decline:
- The above average pace of shipping during the first nine months of 2017 led to lower shipments in the last quarter to fill customer nominations.
- As previously highlighted by the company, a major customer reduced its pellet nominations, which reduced the volumes for 4Q17.
For 2017 as a whole, CLF’s US volumes improved by 50,000 tons to 18.7 million tons.
Volume guidance for 2018
Cleveland-Cliffs maintained its US volumes guidance of 20.0 million tons for 2018, which implies growth of 7% YoY in volumes. The growth is mainly expected due to strong customer nominations and the acquisition of the remaining interest in the Tilden mine by CLF in 3Q17.
Change in sales recognition
Going forward, the company will recognize sales sooner than it did historically. As of 2017, CLF’s 1Q sales represented vessels shipments made from December to February. First quarter sales will reflect shipments made between January and March. While the actual sales will be unaffected by this reporting change, its reported volumes for 1Q18 will be lower than what is typical for a first quarter. March is usually lighter on volumes compared to December. Conversely, CLF’s volumes in 2Q18 should show a marked increase. The company is expecting only 1 million tons of volumes in 1Q18, which will be offset by higher volumes in the remaining quarters during the year.
Cleveland-Cliffs expects demand to remain strong in 2018. CLF’s CEO (chief executive officer) Lourenco Goncalves also mentioned the Section 232 probe, the findings of which have been submitted. The results of the probe, however, are still unknown. He mentioned that the most important thing “is the enforcement of any restrictions that are put in place.” A favorable decision in this probe would likely be beneficial for US (DIA) (DOW) steelmakers such as U.S. Steel (X), Nucor (NUE), Steel Dynamics (STLD), and Cleveland-Cliffs.