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Cliffs’s US Realized Prices Surged to Highest in 3 Years

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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’s (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 surge

Cleveland-Cliffs’s realized revenues during 1Q18 came in at $105 per ton, which represents very strong growth of 32% year-over-year (or YoY). The realization was also 26% higher sequentially. The strong realization was due to favorable pricing adjustment, which was, in turn, supported by a substantial increase in domestic hot-rolled coil (or HRC) prices. Higher pellet premiums and a more favorable customer mix also supported higher realized prices for the company. Investors should also note that during the release of its 4Q17 results, CLF was expecting the realized prices to average just $75 per ton in 1Q18. This is a huge outperformance of its own guidance mainly due to favorable weather conditions and market dynamics.

Future expectations for realizations improve too

Based on the performance to date of iron ore, US HRC steel, and Atlantic pellet premiums, and assuming that these levels persist for the rest of the year, the company expects an improvement in price realizations in 2018. In its 4Q17 results, Cliffs was expecting US realized prices to come in between $97 and $102 per ton. With better year-to-date (or YTD) averages, it has raised its expectation to $102 to $107 per ton. The YTD averages used for these expectations are:

  • $770 per ton for HRC
  • $73 per ton for iron ore benchmark price
  • $58 per ton for Atlantic pellet premium

The company maintained that these expected realized revenue ranges should not be construed as guidance, as they do not reflect its internal view on pricing.

Higher future realizations for Cleveland-Cliffs is good news 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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