Cliffs Natural Resources: What We’re Watching

Cliffs Natural Resources’ (NYSE:CLF) will release its Q3 results on Friday morning. Iron ore and coal prices have been under pressure during the previous quarter with the falling industrial demand for the raw materials. Cliffs is the largest producer of iron ore pellets in North America and a major supplier of direct-shipping lump and fines iron ore out of Australia. It is also a significant producer of metallurgical coal and competes with other international mining and natural resources companies including Vale (NYSE:VALE), BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO).

See our full analysis for Cliffs Natural Resources

The ongoing debt crisis has taken its toll on all the basic materials’ companies, weighing their stocks down on fears of a demand slow down going forward. As steel consumption is the largest use of iron ore, fears of a slow down in Europe have weighed on the stock. For American iron ore producers, the demand for the ore has been relatively stable until now. However, the spot market prices of iron ore have been hit due to some uncertainty in the global market. Since iron ore contracts are now valued on an average quarterly price of iron ore in the previous quarter, the company may see some decline in revenues due to the same.

We believe that the performance in the third quarter will be better than other coal and iron ore manufacturers that have significant exposure to the European market.

New projects and developments will help support quarterly revenue up. The company also has a significant presence in the Asia-Pacific region where the demand is still robust, lending a support to the company’s shipments. The profitability of the company may become a cause of concern in the coming quarters as the prices for commodities have been under pressure due to the uncertain economic condition.

We currently have a Trefis price estimate of $103 for Cliffs Natural Resources’s stock, which is significantly above the current market price.

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