Steel Products Prices North America

Cliffs Turnaround Strategy Narrows Losses

January 28, 2016

Cliffs Natural Resources narrowed its net loss to $58 million in fourth quarter compared to $1.4 billion in Q4 2014. Full year net loss was $748 million compared to $8.3 billion in the prior year.

“Despite the severely negative impacts of global iron ore and domestic steel prices, in 2015 we achieved substantial cost reductions in all areas of the business,” said Lourenco Goncalves, Cliff’s Chairman, President and CEO. “On top of an outstanding year of operating performance, we checked a number of boxes in line with our U.S. pellet-centric strategy, most recently with the full divestiture of our North American Coal business.”

Revenue for fourth quarter of $476 million was down 54 percent from Q4 2014. Full year revenue dropped 40 percent to $2.0 billion. Pellet sales of 4.5 million tons in Q4 dropped 42 percent year-over-year. The decrease was due to the termination of the Essar Steel Algoma contract and lower demand from U.S. mills.

Adjusted EBITDA was $76 million in Q4 and included $30 million of expenses related to idling of United Taconite, Northshore and Empire Mines.

Cliffs improved its USIO cash production cost to $45 per ton in Q4 and $55 per year for the full year 2015 beating its forecast of $60 and $65 per ton. The company expects to better that result by $5 per ton in 2016.

Cliffs expects to sell 17.5 million pellets in 2016, up from 17.3 in 2015. Production is estimated at 16 million tons for 2016 with 1.5 million tons of current inventory supplementing sales.

Goncalves highlighted the difficulties that imports have caused for the steel and iron ore industries.

“The most adverse condition we’ve dealt with here in the U.S. was not iron ore price, but rather the demand for pellets from our domestic clients. The price of steel in the U.S. has been hammered by record levels of imports. The vast majority of that are unfairly priced and dumped in our domestic steel market.”

He added, “As the preliminary rulings for hot-rolled and cold-rolled steel are released by the Department of Commerce in the next couple of months, domestic steel prices and steel demand should continue to recover for our clients, in turn, Cliffs’ profitability should improve as well.”

Idling the United Taconite and Northshore mines helped Cliffs to recoup cash from inventory produced in 2015. The mines are expected to return to production in 2015 as inventory levels decline and domestic steel production improves.

The threat of competition from Essar Steel Minnesota is now mute according to Goncalves. “It’s gone, game over” he commented.