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  • ousaouparis ousaouparis Feb 17, 2011 8:21 AM Flag

    EFFECT OF CLF EARNING ON MSB

    Today the MBOI index is up again, 191.70 USD/Tm CFR China or up $1. 01 from yesterday. According to the index, the consensus is that the price of iron ore is peaking. Although CLF price is much lower, the spot MBIO price should help the CLF price. China and India are the largest buyer of iron ore, still. The inflation is near term not negative. Long term, fall 2011 is a question mark. 2012 will see iron ore price tank substantially as inflation will temper iron ore buying. That is what I have been reading as of today.

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    • Correct me if I'm wrong but doesn't CLF buy MSB iron ore under contract and isn't that contract @ $75/ton and doesn't that contract run until 2016 ? It seems that CLF blew away the profit estimates and one of the reasons is because they pay substantially less for their iron ore than everyone else.

      • 1 Reply to gpd8252
      • <<doesn't CLF buy MSB iron ore under contract and isn't that contract @ $75/ton and doesn't that contract run until 2016 ?>>

        Not exactly. CLF sells ore to its North American customers under long-term contracts, and the contracts that specifically mention Northshore and Mesabi Trust lands run through 2016. The contract price is formulaic, but the formula has been in arbitration for most of 2010, so CLF has recognized sales at the pre-arbitration price of ~$75. CLF pays MSB royalties based on their sales price and tonnage. If CLF's sales price goes up, MSB's royalties go up.

        In my quick read of CLF's report, it looks like their NA iron ore profits are up ~3x and international ore profits up 6.5x; coal losses are down, but a trivial contribution. The main movers seem to be 60% increase in NA ore volume and 90% increase in seaborne ore price.

        They have also provided the explicit formula dependence of NA ore on international prices:

        <<For every 10% change from the above expectation for annual blast furnace pellet prices, Cliffs expects its average realized revenue per ton in North American Iron Ore to change by approximately $6>>

 
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