Cliffs Natural Resources reports on soft business conditions
9:24 am, July 2, 2009
Cliffs Natural Resources Inc. (NYSE: CLF) continues to report soft business conditions in its iron ore and coal businesses. Because of amendments to customer supply agreements, Cliffs said it expects about one million tons of customer purchase obligations for iron ore pellets to be deferred to the first quarter of 2010. As a result, Cliffs said it now has contractual obligations for 17 million tons of iron ore pellets in 2009 and expects to collect cash from customers for this amount in the current year. Cliffs said the amount of sales volume recognized in 2009 will depend on accounting principles for so-called “bill and hold” sales. Cliffs said the 17 million tons excludes revenue recognition of 1.2 million tons deferred at the end of 2008. The company said it’s recognizing revenue from the deferred purchases as these tons ship in 2009. Cliffs also revealed that Vale and a steelmaker in Europe agreed to a price settlement decrease of approximately 48% for iron ore pellets. Assuming this settlement price is adopted by Eastern Canada and other iron ore pellet producers, and combined with the impact of the amendments to the customer supply agreements, Cliffs expects average revenue per ton in its North American Iron Ore business segment to be approximately $75 in 2009.
Currently, the North American Iron Ore business segment is expected to produce 15 million tons in 2009 at a cost of $70 to $80 per ton.
In addition, Cliffs said the owners of the Hibbing Taconite Joint Venture — whch is held 62.3% by steelmaker ArcelorMittal, 23% by Cliffs and 14.7% by U.S. Steel Canada — have decided to extend the Minnesota plant’s current shutdown through the first quarter of 2010 due to continuing soft demand for iron ore pellets. The facility originally was shut down in May, following an idling of two of Hibbing’s three pelletizing furnaces in March. The shutdown had been expected to last 15 weeks. The Hibbing Taconite venture has a capacity of 8.0 million tons per year and employs about 700 when operating at full capacity.
As for its North American coal business, Cliffs has revised sales volume expectations to approximately 1.5 million tons of coal at average revenue of approximately $100 per ton.
Don Gallagher, president of Cliffs’ North American Business Unit, said in a statement, “While we have begun to see preliminary signs of stabilization in the North American steelmaking industry, we will continue to ensure our production and inventory are balanced with customer demand.”
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