Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
Cleveland-Cliffs (CLF)Stock (Manufacturing Industry, Steel & Iron Industry)
 Of the eleven iron ore mines in operation across North America, Cleveland-Cliffs facilitates six, representing 46% of North American iron ore pellet production and allowing Cleveland-Cliffs to claim the number one market share position in North America.[4] Two trends that may depress domestic demand for steel are a downturn in new home construction (because of subprime woes) as well as troubles with American car makers. Both sectors drive a significant demand for steel. From 2001 to 2006, revenues in the steel and mining industries have been booming due to historically high steel prices. Demand for this product has been high in international regions, especially China, where construction and manufacturing industries have ramped up very quickly.
[edit] Business FinancialsUp until 2002, Cleveland-Cliffs operations consisted mostly of managing iron mines for integrated steel companies. Since 2002, however, the company has focused on acquiring increasing ownership of iron mines, functioning more as a direct merchant of the resource.[5] As can be seen in the graph below, over the past five years, this change in direction has allowed Cleveland-Cliffs to improve their financial situation drastically. Besides increasing revenues by 220% over that period, the company was also able to raise net income from a loss of $188 million in 2002 to a profit of $280 million in 2006.[6]
[edit] SalesCleveland Cliffs' 2006 sales of iron ore were to steel producers across the world: eight North American, one European, one Japanese and four Chinese.[7] However, Cleveland-Cliffs' production in 2006 was heavily directed towards and dependent on five customers in its North American market. The following table presents the percentage of Cleveland-Cliffs yearly revenues generated by the five biggest customers.
Source:Cleveland-Cliffs 2006 10k[8] The company has also recently entered into agreements to provide iron ore for AK Steel Holding (AKS) and Republic Engineered Products Inc.[9] In the international market, Cleveland-Cliffs' Australian segment, Portman, has long-term supply agreements with steel producers in China and Japan, shipping to them 80% and 20% of the iron ore produced, respectively.[10] [edit] International OperationsThe company operates internationally as well. Since 2005, Cleveland-Cliffs has owned a majority interest in Portman Limited, a substantial iron ore mining company in Australia which serves the Asian markets.[11] Additionally, in 2007 the Company acquired a 30 percent interest in a Brazilian iron ore project, the Amapa Project (acquired in 2007), and a 45 percent economic interest in an Australian thermal and coking coal project, the Sonoma Project.[12] Most of Cleveland-Cliffs' Australian productions from the Portman facility are committed under long-term contracts to Chinese and Japanese steel makers. In 2005, iron ore production totaled 4.9 million tons, increasing to 7.4 million tons in 2006.[13] Revenues from these operations totaled $361 million in 2006, up from $204.5 million in 2005.[14] [edit] Key Trends & ForcesSingle End Market: Cleveland-Cliffs produces iron ore and metallurgical coal for the steel industry. Global demand for steel has been high in recent years, which leads to equally high demand for iron ore and metallurgical coal. However, if the global demand for steel were to decrease, this could negatively affect profits. Furthermore, the U.S. steel industry is extremely cyclical, and a decrease in steel production and profitability could lead to lower profits for the mining industry as well.   Energy Costs: The mining industry is extremely energy-intensive, demanding high amounts of diesel fuel, natural gas and electricity. These costs amounted to 25% of Cleveland-Cliffs 2006 North American operating costs.[15] Fuel prices have increased dramatically in recent years, due to a growing worldwide demand for energy. Mini-mill vs. Integrated Steel Production: Iron ore is used only by integrated steel producers, whereas mini-mills use scrap steel. Steel production by mini-mills accounted for approximately 57% of finished steel products in 2006.[16] If domestic steel makers increasingly use methods that do not use iron ore for production, whether it be for environmental concerns or regulations or for other reasons, demand will decrease likely leading to lower profitability. [edit] Competition and Iron Ore Market ShareCleveland-Cliffs claims the number one market share position in North American iron ore production. Because Cleveland-Cliffs still manages mines for some steel companies, they control more iron ore than they own directly. However, even considering this point, Cleveland-Cliffs' complete ownership of 28.3% of production is still the highest market share in the North American market, as can be seen in the table below.
Source: Cleveland-Cliffs 2006 10k[17]
[edit] References
|
The Shelf
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Edit
History
Bookmark
