CLF’s CEO says shortage of iron ore pellets to persist
During an interview with the S&P Global Platts, Cleveland-Cliffs’ (CLF) CEO, Lourenco Goncalves, said he expects a shortage in iron ore pellets to persist as China pushes to improve its air quality and a rebound in carbon credit prices in Europe sustains demand. He thus expects higher premiums and earnings for iron ore pellets to remain.
Vale’s dam disaster to keep echoing
There is another factor that is supporting higher premiums for iron ore pellets. On January 25, a dam at Vale’s (VALE) Brumadinho mine burst, which killed at least 230 people. The Vale disaster impacted the iron ore markets, as it announced it would decommission several projects, and the Brazilian court ordered it to suspend some of its operations. This resulted in a loss of volumes, and as a result, iron ore prices zoomed above $100 per ton. Out of the production taken out by Vale, a significant proportion of iron ore pellets was also impacted, leading to higher premiums for pellets.
CLF’s outperformance versus peers
Goncalves added, “What we are seeing in the world right now is the biggest pellet shortage that you could not have imagined what would happen.” This factor is the major reason that Cliffs is outperforming its US steel peers YTD. While all of the US steel stocks are in red for the year, Cliffs is the only one in the green. U.S. Steel (X), AK Steel (AKS), ArcelorMittal (MT), and Steel Dynamics (STLD) have fallen 31.4%, 16.9%, 27.2%, and 12.7%, respectively. In comparison, CLF’s stock has gained 16.6% as of June 3.