Why We’re Raising Our Price Estimate For Cliffs To $8
Last week’s Department of Commerce (DOC) ruling confirming its preliminary imposition of antidumping duties on steel imports from seven countries is a shot in the arm for the domestic steel industry. [1] The DOC had also announced the imposition of stiff antidumping duties on steel imports from China earlier in the year. [2] Regulatory intervention over the course of the year has lowered the competition to the domestic steel industry from cheap steel imports. The share of steel imports in the domestic market had risen from 23.2% in 2013 to 29.3% in 2015, negatively impacting the realized prices, shipments and profits of domestic domestic steelmakers. [3] Since iron ore is an important raw material in the production of steel, the adverse business environment for the steel industry had negatively impacted the fortunes of domestic iron ore producers as well. Cliffs’ U.S. iron ore shipments fell nearly 20% year-over-year in 2015, reflecting a weakening of demand for iron ore by domestic steelmakers. [4]
The year 2016 has been a more positive one for Cliffs. With a recovery in the fortunes of domestic steelmakers, Cliffs fortunes have also experienced a revival. The company signed two long-term supply agreements with ArcelorMittal and U.S. Steel Canada in recent months. Moreover, Cliffs also revised the original sales guidance for its U.S. Iron Ore division upwards by 3% in Q2, reflecting a more positive outlook. Furthermore, the success of the company’s cost reduction initiatives has propped up the margins of both the U.S. and Asia Pacific iron ore operations, as reflected in the company’s Q2 results. In order to incorporate the improved prospects of the company’s U.S. Iron Ore operations (which account for around three-fourths of Cliffs’ total revenue), we have modified our estimates for the division’s realized prices and margins. We have also suitably modified our margin forecasts for the Asia Pacific Iron Ore operations in order to reflect the latest data. Check out our new margin forecasts for Cliffs’ iron ore operations:
As a result of the modifications to our forecasts, our new price estimate for Cliffs reflects the positive changes in its business environment.
Have more questions about Cliffs Natural Resources? See the links below.
- What Is Cliffs Natural Resources’ Fundamental Value Based On 2015 Results?
- What Is Cliffs Natural Resources’ Revenue And EBITDA Breakdown?
- How Has Cliffs Natural Resources’ Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Did Cliffs Natural Resources’ Revenue & EBITDA Decline Over The Last 5 Years?
- By What Percentage Can Cliffs Natural Resources’ Revenue & EBITDA Change Over The Next 3 Years?
- How Will Cliffs Natural Resources’ Revenue Composition Change by 2020?
- How Do Cliffs Natural Resources’ Margins Compare With Those Of Iron Ore Mining Giants Such As Rio Tinto And Vale?
- Why ArcelorMittal Is The Most Important Customer For Cliffs’ U.S. Iron Ore Sales
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