uploads///US Sales Volumes

Why Cleveland-Cliffs Expects Strong US Volumes in 2019

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Oct. 23 2018, Updated 9:31 a.m. ET

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’ third-quarter USIO volumes.

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US volumes higher

Cleveland-Cliffs (CLF) reported volumes of 6.48 million long tons for its USIO division for the third quarter, which is at the upper end of the company’s guidance of 6.0 million–6.5 million tons. The volumes in the latest quarter reflect a YoY (year-over-year) increase of 10.5%. Timothy Flanagan, CLF’s CFO, attributed the volume consistency to the persistent need for pellets from the Great Lakes blast furnaces.

Volume guidance maintained for 2018

During its second-quarter results, Cleveland-Cliffs had upgraded its 2018 US sales volume guidance from 20.5 million tons to 21.0 million tons on strong demand dynamics. This guidance implies growth of 12.5% YoY. During the third quarter, CLF reaffirmed this guidance.

Cleveland-Cliffs’s production guidance remains at 20.0 million tons. Its sales volume is expected to include part of the inventory built by the company at the end of 2017.

For the fourth quarter, the company’s guidance implies 6.94 million tons of shipments. Flanagan reiterated that shipments should pick up in the fourth quarter as mills stock up ahead of the winter months.

Management’s comments

Cleveland-Cliffs (CLF) expects demand to remain strong in the rest of 2018 and beyond. Its CEO, Lourenco Goncalves, noted, “In the domestic steel market, thanks to a still very underappreciated tax reform implemented in the United States, which is supporting high economic growth and full employment in our country, healthy steel demand is a reality in nearly every single subsector.”

Goncalves noted that according to early indications from some of CLF’s domestic clients, strong demand for pellets is expected from blast furnaces in 2019.

The positive outlook reiterated by CLF is good news for 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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