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Could There Be a Downside to Cleveland-Cliffs’s US Realized Prices?

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Realized revenues

Along with volumes, realized revenues are among the most important components that drive a commodity company’s top line. Realized prices also help assess market sentiment, as they are derived from existing market prices.

Cleveland-Cliffs’ (CLF) realized revenues for the third quarter reached $105.65 per ton, which represents strong growth of 16.7% YoY. This increase resulted from favorable customer mix and the positive impact of higher hot rolled coil (or HRC) prices. However, the realized prices in the third quarter were down 6.2% sequentially because the second quarter benefited from some favorable one-off items. Moreover, freight rates in the third quarter were higher sequentially.

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Expectations for 2018

Cleveland-Cliffs expects US (SPY)(IVV) realized prices to be $105–$110 per ton for 2018. This expectation is based on the assumption that the following variables remain at this level for the rest of the year. Below are the YTD averages used for these expectations:

  • $839.00 per ton for HRC
  • $69.00 per ton for the iron ore benchmark
  • $58.00 per ton for Atlantic pellet premium

The company maintained that these expected realized revenue ranges shouldn’t be construed as guidance since they don’t reflect its internal view on pricing. Investors should note that HRC prices have dropped ~13% from the average until the third quarter. Therefore, there could be a downside to its average realized price in the fourth quarter.

Peers’ ASP

Among Cliffs’ US peers (DIA), AK Steel’s ASP (average selling price) was better than expected in the fourth quarter though it was lower sequentially. The company reported a flat-rolled ASP of $1,106 per ton in the fourth quarter compared to $1,114 per ton in the third quarter.

As we’ve discussed previously in this series, higher pellet premiums could mean higher future realizations for Cleveland-Cliffs, which is also a positive sign for US steelmakers (SLX) including AK Steel (AKS), Nucor (NUE), U.S. Steel (X), and ArcelorMittal (MT).

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