By John W. Miller
Cliffs Natural Resources Inc. plans to join steelmakers in
filing complaints over steel imported into the U.S., its chief
executive said, a move that could increase pressure on the U.S.
government to add more tariffs on steel products.
Under chief executive Lourenco Goncalves, who took over last
August, Cliffs has been restructuring to focus on five profitable
iron ore mines in Minnesota and Michigan that sell exclusively to
U.S. Steel, ArcelorMittal and other steelmakers with U.S.
mills.
Those mines are now vulnerable to the sudden slide in steel
prices. Most steel experts have attributed, principally, to the
collapse in oil prices. As energy companies have pulled back, they
have canceled orders for steel pipe.
But Mr. Goncalves said in an interview that a rise in steel
imports is the biggest factor in depressing prices. Steel imports
rose 34% to 41.5 million during the first 11 months of 2014,
according to Global Trade Information Services.
"The collapse of the steel price is not about the oil price,"
Mr. Goncalves said. "The reason is the avalanche of imports."
Adopting an aggressive trade stance is the latest move in the
Cleveland-based iron-ore and coal miner's struggle to return to
profitability amid falling steel, iron ore and oil prices.
Mr. Goncalves highlighted Cliffs' stance on trade after the
company reported a net loss of $1.3 billion in the fourth quarter,
or $8.25 per share, compared to a net profit of $30.5 million, or
20 cents per share, in the same quarter a year ago. For the year,
Cliffs reported a net loss of $7.2 billion, compared to a profit of
$364.8 million in 2013, due mainly to falling iron-ore prices and a
$6 billion charge related to a disastrous 2011 investment in a
Canadian iron ore mine.
It has been a bleak year so far. Benchmark prices on hot-rolled
coil are down 9% to $548 per ton since the start of the year. U.S.
Steel last month said it would likely have to lay off almost 3,000
workers.
Although the steelmakers have pointed to falling oil prices for
their malaise, some have also fingered imports and threatened
possible trade action. "We'll be aggressive," Nucor Corp. CEO John
Ferriola told analysts last week.
Cliffs is the U.S.'s biggest iron ore miner, and by joining the
fray, Mr. Goncalves strengthened the steelmakers's case.
So far this year, no unfair-trade challenges over steel have
been filed with the International Trade Commission. Last summer,
U.S. Steel and others won import tariffs on imports of
energy-related steel from South Korea and other exporting
countries.
Mr. Goncalves needs all the help he can get. Cliffs' share price
has fallen almost 40% since he took over, as global iron ore prices
are down 26%.
The CEO has based his turnaround strategy on paring down the
company to the profitable Midwestern mines--and his ability to cut
costs. He has sold off coal mines in West Virginia, and put a
flailing Canadian operation under a form of bankruptcy protection,
but has been unable to sell assets in Australia.
For the fourth quarter, the company said it cut spending
9%--compared to a year ago--to $1.1 billion, because of mine
closures, layoffs, hiring fewer contractors and more favorable
exchange rates.
Mr. Goncalves says that, thanks to geography, Cliffs' Midwestern
business "is the most protected iron ore market in the world, so
that's still our focus." Even though global iron ore prices fell
almost in half over the year, Cliffs' average "revenue from product
sales and services" in U.S. iron ore fell only 9% on the year, to
$102.36 per ton. U.S. production costs dropped to about $59 per ton
in 2014, down from $61.86 in 2013.
For the quarter, Cliffs increased U.S. iron ore sales volumes
26% to 7.8 million tons from 6.2 million tons, and reported a
profit of $248.7 million, down slightly from $254.8 million in the
same quarter in 2013.
Cliffs benefited from American steel mills "restocking their
inventory ahead of winter," said Mr. Goncalves. Also, he added, he
was able to unlock bottlenecks with the railroads "by explaining
that our business is important to them, and that we have to be
treated as an important client."
Write to John W. Miller at john.miller@wsj.com
Access Investor Kit for ArcelorMittal SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=LU0323134006
Access Investor Kit for ArcelorMittal SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US03938L1044
Access Investor Kit for Cliffs Natural Resources, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US18683K1016
Access Investor Kit for United States Steel Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9129091081