Cliffs Natural Resources’ Q4 2016 Earnings Review: Improved Iron Ore Pricing Environment And Lower Costs Boost Results
Cliffs Natural Resources released its Q4 2016 results and conducted a conference call with analysts on February 9. [1] As expected, the company reported a substantial improvement in its earnings, driven by an improved iron ore pricing environment, with lower unit production costs further boosting the company’s bottom line.
Iron ore prices rose substantially towards the latter part of 2016. Production curtailments by high-cost iron ore producers helped lessen the extent of the global iron ore oversupply situation, which weighed on prices over the previous two years. In addition, the Chinese government’s fiscal stimulus targeting the infrastructure and construction sectors propped up the global demand outlook for iron ore, further propping up prices. [2] The improved pricing environment is reflected in the realized prices of the Asia Pacific Iron Ore division, for which pricing contracts are closely linked to spot prices. The U.S. Iron Ore division is characterized by longer term pricing contracts and the improved pricing environment will be reflected in the division’s realized prices with a lag, that is, in future quarters.
The absence of idle costs at the U.S. Iron Ore operations, as a result of higher production levels, helped lower unit cash production costs in Q4 2016 as compared to the corresponding period of the previous year. Though the Asia Pacific Iron Ore operations reported higher unit cash production costs, since the U.S. operations account for close to three-quarters of Cliffs’ revenues, the lowering of unit production costs of the U.S. Iron Ore operations boosted the company’s earnings.
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Going forward, Cliffs is expected to benefit from an improved outlook for steel demand in the U.S. Antidumping duties imposed by U.S. trade authorities on unfairly traded steel imports has helped create a fairer business environment for domestic producers. [1] In addition, President’s Trump’s economic policies, including a $1 trillion revamp of domestic infrastructure, is expected to translate into higher demand for steel in the U.S. and consequently, iron ore. Thus, 2017 promises to be a year of improved results for Cliffs Natural Resources.
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?
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Notes:
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Notes:- Cliffs Natural Resources’ Q4 2016 Earnings Call Transcript, Seeking Alpha [↩] [↩]
- China’s stimulus-driven growth bolsters metal prices, Financial Times [↩]