Has anyone actually gone through and read the credit suisse downgrade? It is very in depth and seems to makes sense. They are atlking about drastic changes to CLF's north American operations and profitability due to the fact that most of the steel makers are going through vertical integration and producing their own iron ore. I am long at $26.20 and I have been feeling this pain rather harshly over the past few weeks. I really don't want to sell but management isn't really countering any of the viewpoints of these analysts.
Earnings can't come fast enough in my opinion. I just want to hear management say something for god's sakes. Have they historically stayed so mum throughout the year or do you think they aren't saying anything because what they have to say might actually make the situation worse?
And in this report they call for Q1 2013 EPS of 0. Heck they call for full year 2013 of -.55 cents. I guess we will find out how accurate they are in about a month.
Interesting that they go on to talk about total US blast furnace consumption having the potential to rebound, but then go on to say it will not happen... SO they basically say hey blast furnace consumption could climb back up to pre 2008 levels of 40mtpa, but we do not think it is likely and will stay at 30mtpa. And that is that.
Basically they say a lot of possible things, but then only show scenarios where the bad outcome happens.
You are right that they include a lot of information though, heck it is 36 pages. and the JPM most recent was only 24 pages. Then again about there is simply a lot more graphs which then are talked about on the CS writeup. It is a very detailed writeup though and is worth the read if you can get a copy.
The steel producers mining their own ore is somewhat older news. I just don't know why management is sitting on their hands during this massive downturn, allowing analysts to pretty much say anything they want and thus manipulate this so easily. I've even heard an analyst call for $50 IO for the second half of 2013. Idiots like that are able to make unrealistic and manipulative forecasts since no one seems to have a clue where ore is going in the future. When you have one guy saying $130-140 for the second half and another guy saying sub-$80, it just shows how volatile the industry is and how clueless the "experts" are. Truth is... no one knows where IO is going, even in the short term. Management needs to speak up during times like these and if they don't, they need to step aside for someone that will not only stand up for the shareholders, but will make the changes necessary to keep mining costs down.
The Credit suisse north american IO discussion is broken up throughout the report but I have posted a lot of it below
Great Lakes supply / demand deep dive
We have analysed the longer term market dynamics of CLF’s key iron ore market; the
Great Lakes between the US and Canada. CLF’s Great Lakes business (aka US Iron Ore)
generates 75-80% of group earnings, making it the earnings engine room of the company.
A structural iron ore surplus appears likely on the Great Lakes in the future, and the fact
that CLF may be positioned as the marginal supplier in this market has the potential to
change the mechanics of pricing arrangements with customers. We see the long term
threat being a $500mn EBITDA hit (worth $17/share based on 5x EV/EBITDA) if CLF were
to continue producing at 20mtpa, but as the marginal supplier it is more likely that CLF will
be forced to provide a volume response and shut down more of its high cost production.
We have reviewed customer by customer pricing and contractual commitments, and put
together a US Iron Ore realised pricing model. This is likely to be the most granular
analysis of this subject that investors will have seen.
This report builds on some of the themes that were raised in our September 2012 report
when we downgraded our target price from $50 to $30/share (click here). The same
report also spoke to the covenant issues and impairment risks that have since become a
Over time, CLF’s contractual volume commitments with customers roll off:
■ There are two active agreements with CLF’s largest customer, ArcelorMittal, which
expire in 2015 and 2016.
■ CLF’s second largest customer is Essar Algoma, and a 15 year supply agreement
ends in 2016.
■ CLF is the sole supplier of Severstal’s iron ore requirement at the Dearborn facility
through 2022 and up to 2mtpa for the Warren facility until 2014.
Cracks have already started to appear
We can see signs that pricing power has already started to shift away from CLF and
towards the iron ore customer on the Great Lakes
■ CY13 realised pricing guidance was below expectations. As we noted in our CY12
results note (click here), extrapolating CY12 actuals and applying the YoY change to
62% IODEX generates an estimate for USIO CY13 pricing of $124/t. The guidance
CLF offered in February 2013 was only $115-120/t however. Guidance was $4-9/t
lower than what we thought it ‘should’ have been, and we think this is a function of the
looming structural issues we’ve highlighted above. This is why there are two parallel
grey lines in Exhibit 12.
■ Customers are becoming competitors, and taking market share from CLF. For
the past several years, CLF has been Essar Algoma’s primary iron ore supplier –
providing around 3.2 – 3.7 mtpa of iron ore. Not only is the Essar group aiming for selfsufficiency, but Essar will in fact be long iron ore and recently announced a 3.5mtpa /
10 year offtake deal with ArcelorMittal. ArcelorMittal is currently CLF’s largest
I am also long at $26 and i know I should sell, but I just cant do it because so many times I have done that and 3 months later the stock is up over 50%. just praying now which never seems to work. i'll bet i give up at $11 and 3 months later it will double to $22.
So this is a company specific issue? Most other ore producers are going up today. There is a sea change in the industry and this is the only stock impacted. This is the worst performing stock in the S&P 500 for the year. This stock is underperforming it's peers by roughly 50%. If things are so bad why hasn't the dividend been cut to zero? Or is that coming next?
seriously though, log into your td ameritrade or etrade account and go and read the credit suisse report for yourself. I have been reading their updates for a while now and this is by far the most in depth report they have on CLF. that's what scares me. The other tims they seemed to have possibly overlooked some things, but every detail down to the smallest thing is addressed and discussed in their report