Why Cleveland-Cliffs Lost Steam After A Revenue Growth Of 50% Over The Previous 2 Years

Cleveland-Cliffs (NYSE: CLF) has added close to $0.78 billion in revenue between 2016 and 2018, which has led to total revenues increasing from $1.55 billion in 2016 to $2.33 billion in 2018. This rise was mainly driven by an increase in iron ore volume sold and premium pricing for its high-grade ores. Though freight revenue decreased in 2018, strong iron ore sales have driven healthy revenue growth. However, despite high iron ore prices, the company is not expected to replicate this performance in the near future, with Trefis expecting CLF to only add about $0.04 billion over the next two years, mainly driven by a decrease in shipments and loss of revenue from the sale of the Asia-Pacific operations.

You can view the Trefis interactive dashboard – Cleveland-Cliffs’ Revenues: How Does CLF Make Money? – to better understand the company’s historical and projected revenue performance, and alter the assumptions to arrive at your own revenue estimates for the company. In addition, here is more Materials data.

Before looking at the Iron Ore Revenues of the company, let us understand CLF’s business-

(a) What Does CLF Offer?

  • CLF produces iron ore pellets from its mines and pellet plants located in Michigan and Minnesota, for use in blast furnaces as part of the steel making process, as well as iron ore concentrate.
  • Various grades of iron ore are produced and delivered to customers based on their preference, which essentially depends on the characteristics of the customer’s blast furnace operation.

(b) Who is Paying?

  • CLF’s iron ore production is largely sold to integrated steel producers, generally pursuant to term supply agreements with various price adjustment provisions.
  • ArcelorMittal is the largest customer for this division, accounting for 57% of the revenues of the U.S. Iron Ore operations in 2018.
  • AK Steel and Algoma are the division’s other major customers.

(c) What Are The Alternatives?

  • Major competitors are steel companies that own significant interests in North American iron ore mines, such as U.S. Steel, in addition to major Australian and Brazilian iron ore producers such as Vale and Rio Tinto.

Iron Ore Shipments

  • After increasing its shipments by 2.4 million tons from 2016-2018, CLF is likely to see net volume decline by 0.4 million tons in the next two years (with volume declining by 0.6 million tons in 2019 followed by a 0.2 million ton increase in 2020), mainly due to lower production.
  • Iron ore production is expected to remain low in the near term, driven by loss of volume from the Asia-Pacific business (which was sold in 2018) and unplanned maintenance at the Tilden site.
  • However, the new hot-briquetted iron (HBI) plant is expected to add to the company’s volume from mid-2020.

Iron Ore Price Realization

  • Iron ore prices have seen healthy increase in the recent past, due to China’s new environment policy, under which the country will import ore only with Fe content of 62% or more.
  • This has benefited CLF which has high grade ores, in the form of premium pricing for its output.
  • Global prices are expected to remain elevated in the near term due to supply constraints, as Vale has announced production cuts due to an accident at its site in Brazil.
  • Thus, CLF’s price realization is expected to increase further, however, the rate of increase in price will be much lower compared to the previous two years.


  • Iron ore is expected to add only $90 million to its revenue base over the next two years, compared to $793 million over the previous two years.
  • This translates into an expected CAGR of about 2% over the next two years (2018-2020 period), significantly lower than a CAGR of 25.5% in the previous two years (2016-2018 period).

Despite CLF being set to lose its steam in the near term, based on Cleveland-Cliffs Valuation by Trefis, we have a price estimate of $13 per share for CLF’s stock. We believe that premium pricing for the company’s high-grade ore, expansion of production capacity from 1.6 million metric tons to 1.9 million metric tons at the new HBI (hot-briquetted iron) plant in Great Lakes, and upgradation of its Northshore plant to replace up to 3.5 million long tons of blast furnace pellet production with DR-grade (Direct Reduction grade iron, which is a high quality metallic product, ~90% pure iron)  pellet production, is expected to lead to higher production and revenue from late-2020, which would, in turn, support growth in the stock price going forward.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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