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Supply Glut Fears ‘Exaggerated’? CLF’s Demand Outlook

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Lower US volumes

Cleveland-Cliffs’ (CLF) Mining and Pelletizing sales volumes fell in Q1 2019, by 3.8% YoY (year-over-year) to 1.55 million tons, meeting just 7.8% of its expected volume for the full year. This disproportionate contribution is mainly due to seasonality—tonnage and prices tend to be low in the first quarter for Cleveland-Cliffs due to the Soo Locks’ annual closure, which limits rail shipments on the Great Lakes. During the company’s conference call, CFO Keith Koci stated that the company’s Q1 volumes beat their own expectations due to better performance from their rail carriers.

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Volume guidance for 2019

Cleveland-Cliffs maintained its 2019 production and sales volume guidance of 20 million tons each. This guidance includes 500,000 tons of direct-reduced grade pellets to be delivered to its hot-briquetted iron plant in Toledo. The company has guided for volumes of 5.0 million tons in the second quarter.

Management’s comments

Cleveland-Cliffs expects demand to be strong this year. CEO Lourenco Goncalves said that US manufacturing activity could continue to be strong, driving robust demand for steel. He also stated that the fear of a supply glut in the US steel sector is “definitely exaggerated.” CLF’s positive outlook is a good sign for steel companies (XME) such as U.S. Steel Corporation (X), AK Steel (AKS), and ArcelorMittal (MT).

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