Why Cleveland-Cliffs Is More Upbeat on Its US Volumes for 2018



US iron ore volumes

US iron ore (or USIO) is the main driver for Cleveland-Cliffs’s (CLF) top and bottom lines. US steelmakers AK Steel (AKS) and ArcelorMittal (MT) are CLF’s main customers. Now let’s analyze Cleveland-Cliffs’ Q2 2018 USIO volumes.

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US volumes higher

Cleveland-Cliffs (CLF) reported volumes of ~6 million long tons for its USIO division for Q2 2018. The volumes in the latest quarter reflect a YoY (year-over-year) increase of 38%. There were two main reasons for the increase:

  • increased customer demand
  • change in the method of sales recognition

Volume guidance upgraded for 2018

Investors might recall that in the first quarter, Cliffs upgraded its 2018 US sales volume guidance from 20 million tons to 20.5 million tons on strong demand dynamics. The strong demand seems to have continued into the second quarter since the company upgraded its US volumes from 20.5 million tons to 21 million tons. The new guidance implies a growth of 12.5% YoY.

Investors should note that Cleveland-Cliffs’s production guidance remains at 20 million tons. Its sales volume will include part of the inventory built by the company at the end of 2017.

For Q3 2018, the company has guided for sales volumes between 6 million tons and 6.5 million tons, with the remaining 6.9 million–7.4 million tons in the fourth quarter.

Management’s comments

Cleveland-Cliffs expects demand to remain strong in 2018. Its CEO Lourenco Goncalves said that notwithstanding the impact of Section 232, the demand in the United States for domestic steel will remain strong.

During its Q1 2018 earnings release, Nucor mentioned its better-than-expected earnings: “These improved earnings are the result of much stronger market conditions that we believe have been positively impacted by deregulation, tax reform and higher, stable oil prices.” The positive outlook reiterated by CLF and NUE is good news for other steel companies (XME) such as U.S. Steel Corporation (X), AK Steel (AKS), and ArcelorMittal (MT), which are expected to release their results over the next few weeks.


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