| What Does Terminated Contract with Essar Algoma Mean for Cliffs? | |
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Will Cliffs Natural Resources Weather the Storm in 3Q15 Results? (Continued from Prior Part) Termination of supply agreement
Cliffs Natural Resources (CLF) reported on October 6, 2015, that it has terminated a pellet sale and purchase agreement with Essar Steel Algoma. The company stated that this decision was made due to Essar Algoma’s multiple and material breaches under the agreement. Cliffs is the only supplier of pellets to Essar Algoma with annual shipments of ~3 million tons.
Cliffs added that while the agreement has been terminated, it remains open to discussion to supply Essar Algoma with pellets on commercially reasonable terms consistent with a just-in-time iron ore supply agreement.
In response, Essar Algoma announced on October 15 that it has secured an alternate, interim iron ore supply.
Who can supply to Essar Algoma?
Cliffs has logistical advantages shipping pellets to Essar Algoma in the Great Lakes area of the United States (SPY). While United States Steel (X) is another pellet producer that has excess capacity at its Minnesota operations and could potentially ship to Essar Algoma, it’s also Essar Algoma’s competitor. So that might reduce the probability of Essar securing supply from United States Steel.
Nucor (NUE), Steel Dynamics (STLD), and ArcelorMittal (MT) are other steel competitors of Essar Algoma in the United States. If Essar Algoma is securing supply from any supplier outside the Great Lakes area, that would add substantially to freight costs, which should not be sustainable for very long.
Going forward, either Essar Algoma could secure iron ore from Cliffs on a short-term basis and pay more, or it could negotiate for a long-term contract to get the discount. Securing a long-term iron ore supply contract from any other supplier doesn’t seem sustainable given the high freight costs if the supplier is outside the Great Lakes area and the fact that United States Steel is a competitor. So the chance of securing iron ore for the long term seems sort of improbable.
Investors should watch for more on this in the earnings call from Cliffs management.
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CLIFFS Natural Resources
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PRODUCTEUR |
CODE : CLF |
ISIN : US18683K1016 |
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ProfilIndicateurs de MarchéVALEUR : Projets & res.Communiqués de PresseRapport annuelRISQUE : Profile actifsContactez la cie |
CLIFFS Natural Res est une société de production minière de fer basée aux Etats-Unis D'Amerique. CLIFFS Natural Res est productrice de fer, de charbon au Bresil, au Canada et en Australie, et détient divers projets d'exploration au Canada. Ses principaux projets en production sont WABUSH MINE, EMPIRE AND TILDEN MINES, HIBBING TACONITE, NORTHSHORE MINE, UNITED TACONITE, OAK GROVE MINE, GREEN RIDGE MINE et PINNACLE MINE au Canada, AUSTRALIAN IRON ORE et SONOMA en Australie et AMAPA au Bresil et ses principaux projets en exploration sont MT JACKSON J1 en Australie et DIAGNOS, WAWA, FREEWEST, MC FAULD'S LAKE, MACFADYEN, WAWA CLAIMS et BIG DADDY au Canada. CLIFFS Natural Res est cotée aux Etats-Unis D'Amerique, en Allemagne et en France. Sa capitalisation boursière aujourd'hui est 5,3 milliards US$ (5,0 milliards €). La valeur de son action a atteint son plus haut niveau récent le 16 mai 2008 à 99,17 US$, et son plus bas niveau récent le 15 janvier 2016 à 1,20 US$. CLIFFS Natural Res possède 297 400 968 actions en circulation. |