The CS analyst said....."We've been writing about an inflection point in the S/D balance for the US iron market for the past two years, and in 2015 it has arrived. The US has historically been a net importer of iron ore, with most material coming from Canada, but the ongoing reduction in local demand now means that very little Canadian material is required to balance the Great Lakes market," Credit Suisse said.
According to latest trade statistics, the yearly iron ore exports by Canada increased during 2014. The exports (to all other countries, including the US) during the year totaled 40.3 million tons, up nearly 6% when compared with the previous year. Canada’s iron ore exports during 2013 had totaled 38.02 million tons. The largest importer of Canadian iron ore in 2014 was China. The Chinese imports totaled 10.07 million tons, accounting for nearly one-fourth of the total exports by Canada. However, exports to China saw significant decline during the year. The exports dropped by 33% when compared with 15.04 million tonnes of iron exported from Canada to China during 2013.
I am not sure what the Credit Suisse analyst sees in order to warrant such a decline in earnings estimates for CLF. Analyst indicates that Canadian exports to the US are going to zero in 2015. I find this hard to believe. But the analyst can make whatever projection he would like. CLF is announcing earnings shortly and that will give the company the opportunity to update the 2015 guidance, if need be.
The analyst certainly does not seem to be on the investment banking payroll.
I would not put too much on CLF's upcoming quarterly earnings. It is usually their slowest quarter of the year. Last year CLF lost money in Q1. Not sure how it will work out thins year. The prior quarter was hugely ahead of estimates ($1 versus expectations of $0.18). But it seems like no one cared. But that is fine. People will care when they decide to care.
CLF shares are still a huge buy, regardless of Q1 2015 results.
Auditor fee info was in the most recently released quarterly SEC filing. It is prominently listed in the financial statements and notes.
Golden Rule for dealing with the Bashers:
IGNORE THEM ... When you REPLY to Bashers, you give them an opportunity to earn appox. 5-7 dollars. The service agreement they enter into with their employer states their messages will be monitored for content,
profanity, lies, etc. but overseers and the like don't have the time to check all their
Bashers messages. Only occasional spot checks are done. Those who manage the
Basher will generally read the headlines to see if a Basher is replying to other posters
by name. That tells them the Basher isn't just "posting blindly".
These bashers offer no insights or fundamental analysis of any value. They criticize everything, regardless of being good or bad. Already with ESI we have a basher criticizing ESI's upcoming earnings news release (and the earnings release is not even out yet). How hilarious, but typical of a basher and their methodologies.
The Bashers on this chat board as so lame. Do not respond to their posts as it only serves to them to earn a fee from their short selling hedge fund sponsors. Furthermore, their posts are void of any value and provide zero insight - so don't even bother reading what they write.
What a bunch of brats bashers are. Remember the basher profile....
Our Constitution guarantees us free speech and we have always valued the lessons gleaned from dissent. When does dissent cross over that imaginary line and become "Bashing"? The "Bashing" that is addressed here is quite different from dissent. Bashers attempt to generate a calculated erosion of confidence in a given stock. Erosion by means that are, in every sense, void of truth, hinged on deception and innuendo, and motivated by greed at the expense of others.
Bashers know YOU CAN'T VERIFY THEIR STATEMENTS. That's why they make the vague statements they do. They rely on you being to lazy to research their droppings other than to scan the board for others opinions. This is particularly dangerous when you consider that Bashers work in packs and often validate and back up each others nonsense with what appears to be "innocuous and unsolicited" verification by comrade Bashers. Let's face it, we are all conditioned to "believe" everything we see in writing. If others by virtue of their "posts" also confirm this belief, then we are subconsciously doomed to swallow the hook, line and sinker... Basher - 1 Honest Investor - 0
ESI's accounting is super clean through Q2 2014, the last public earnings release. ESI spent a humongous $7 million for that last accounting audit, which was a full blown detailed review. Normally ESI spends $500,000 for its annual audit. This audit generated no disagreements between the company and the auditor as was clearly stated in the SEC filings. The Q3 2014 and full year 2014 results, which have not been released as of yet, were delayed due to the appointment of a new auditor at the end of 2014 and then announced consolidation of the 2009 RSA beginning October 1, 2014. These results will be announced in May 2014 and represent a second full blown, hugely detailed audit - in effect the second massive review of ESI's financial statements by two completely different nationally recognized audit firms in an 18 month period. Once this second audit is completed, ESI will be back on its regular timely quarterly earnings release schedule. There is absolutely zero confusion in the marketplace regarding the veracity of ESI's accounting.
Bashers get paid when other poster respond to their ridiculous posts. I am not going to feed them any more. They are not worth the time or effort.
This is completely correct. As I previously posted, even Harvard University has a program to help students pay their student loans if they are in financial trouble.
I think that ESI should be praised for assisting students in paying their student loans. That is a stand up company that would without any requirement to do so step forward to help students. Other things that ESI has done include offering a massive amount of scholarships (over $120 million each year) to students that need financial help. Furthermore, ESI has in place a tuition system that freezes the tuition of any current students so that there are no tuition increases.
There has been no bad news re CLF. The news has only been positive and fantastic. The "negative news" has solely been the price of Chinese bound iron ore, which is not what CLF is all about at all. The "bad news" re CLF has only been the stock price, which has fallen for no reason.
New association to cut Beijing steel industry smog
Xinhua, April 12, 2015
Steel companies, research centers and environmental groups in Beijing and its surrounding area have formed a new association to control air pollution.
Initiated by the Beijing Science and Technology Commission and its counterparts in Tianjin and Hebei, the association, comprising 70 such institutions in Beijing, Tianjin and Hebei, will aim to coordinate industrial upgrading and emission reduction.
One of its chiefs said the association would innovate in capital injection to tackle a lack of funding.
Financial institutions plan to offer as much as 30 billion yuan (4.9 billion U.S. dollars) in loans to cut emissions in Beijing and the surrounding area, said the chief, who requested anonymity.
(3Reuters) - Local authorities in China have closed a number of steel mills after they failed to meet environmental standards, industry sources said on Thursday, as the central government toughens its fight against pollution. MPremier Li Keqiang told the opening session of the National People's Congress on Thursday his government would do everything it could to fight pollution, which has become a lightning rod for public discontent.
There was no official estimate on how much production was affected by the mill closures in the eastern province of Shandong but the news sent Dalian iron ore futures slumping 4 percent amid fears the crackdown would spread to other mills, potentially cutting demand for the steel-making commodity.
China's vast steel sector is at the centre of the government's war on pollution. But complying with stricter standards would raise production costs and producers are similarly hit by tepid demand.
Inspectors from the Ministry of Environmental Protection last week summoned mayors from the cities of Linyi, and Chengde in the northern province of Hebei, urging them to crack down on firms that have violated environmental laws.
"Almost all the steel-making production in Linyi has closed, and there is no date for when to resume production," said an official with Linyi Yuansheng Casting Co Ltd, one of the mills in the city, who declined to be identified.
An official from another mill, Linyi Jiangxin Steel Co Ltd, said the company has stopped production, without elaborating.
Calls to other mills in the city including Linyi Steel and Shandong Shanwei Group as well as to the officials of the city and provincial government went all unanswered.
Analysts estimate the annual crude steel capacity in Linyi at about 7-8 million tonnes. China's total annual steel capacity is between 1.1 billion and 1.2 billion tonnes.
"Beijing's battle against pollution will increase costs for steel mills and force those uncompetitive ones to go bust eventually," said Ch
Thanks for the insightful clarification. So if China takes steps that in the end requires pelletizing, then that step will have to be done by the majors at the place of iron ore production (ie Australia or Brazil). The local Chinese will do the same locally in China, which may give them some advantage in the marketplace.
I can only assume that building a pellet plant has to cost a lot of money and involves all sorts of logistics in terms of transportation of the iron ore fines and the end result pellets. This would be money that does not go towards expanding capacity, which would be good for the overall market and the iron ore prices. Any capital expenditures that has to be diverted from production expansion and goes into raw material processing is a good thing in the current situation.
I have simply no way how to judge what China is doing on the pellet front right now.
ESI has a big earnings release coming up in May. It will be the first report from ESI's new accountants and will no doubt include Q3 2014, Full year 2014, and Q1 2015 results. The Full year 2013 and Q1 and Q2 2014 results were released under the prior accountant. ESI paid $7 million for that last set of reports and the numbers were scrubbed super super clean. With the upcoming new report, ESI will be back on a regular schedule. The Department of Education "heightened cash monitoring" deficiency will be cured as that "deficiency" is solely related to the late filing of financial statements and nothing else. I do not believe that the "monitoring" will be lifted as I believe these "monitoring" things are set for a stated duration regardless of whether the deficiency has been cured or not.
That said, everyone should be prepared for the bashers to post a lot of junk at the time of and immediately after the earnings release. They do not care what is in the report. In fact I suspect that they will not even read the report.
BASHERS WILL LIE TO YOUR FACE. Never trust a Basher. The truth on companies is that they make mistakes. What company hasn't? The Basher will compare your company to another, financials - deals - management, etc., trying to lure you into making an Apples to Oranges comparison. Remember each company is unique and while it is prudent to seek out established indicators, do so with care and don't take someone else's word for it. BASHERS WANT TO WHISPER IN YOUR EAR - PLANT A SEED OF DOUBT, AND HOPE THAT YOU ARE NOT SAVVY ENOUGH TO RESEARCH THE TRUTH ON YOUR OWN. This is how they achieve their greatest success.
The comparison to Alaska Air is a good one. CLF is basically a special situation in the iron ore business. Their attempt to get in the Chinese market with their Bloom Lake project was an ill fated and in hindsight poorly thought out. CLF using its strong US business to fund new projects and business expansion is a good idea and I would have been looking to expand if I were CEO. However, I never would have bet so much on Bloom Lake. It was financially way too much risk for CLF. Such a high purchase price, so much on additional capital expenditures to get the mine running into phase 2 and 3, and too much competition for other huge iron ore players. Now CLF is going through the correction process for the mistakes of prior management. CLF's US business is no different than it was before the Bloom Lake endeavor began. It is very very valuable.
This is a good point. Chinese pollution is off the charts bad. It is a problem of the most serious kind that need to be addressed promptly. Iron ore pellets are needed for sure in China. The question is how does it get done. Where do you pelletize and who builds the plants to do it. Why not start a company in China that just pelletizes iron ore that it buys from others. That could be one option. Another option is that the big three build pellet plants in Australia and then ship the finished goods to China. The big three could also build their own pellet plant locally in China, using their own iron ore shipped from Australia and elsewhere. The local Chinese iron ore players could also build their own pellet plants. Maybe a combination of all the above. I just do not know enough about that market to be able to figure it out as of yet.
I suspect that to get the ball rolling, either the Chinese government must in effect mandate de facto use of pellets by putting in pollution restrictions or the economics of steel production in China must be such that use of pellets becomes more cost effective than using basic iron ore.
I agree with this as Chinese iron ore demand is at a higher basic level than 10 years ago due to the country's GDP growth. But I think that this is baked into the market as the major ore suppliers have expanded operations to meet that level of demand. It is the law of larger numbers, but we have to remember that 7% demand on a large base is also met by larger production capacity. On thing that I have seen is that for the long haul (let's say 10-20 years), Chinese internal steel demand is going to be going up significantly, not down. It takes the mining companies a long time to develop large production capacity, which generally comes on line in large batches. The planning cycles are long. So right now, we are experiencing a large influx of capacity into the market and the market needs some period of time to continue to grow to absorb this capacity. During the absorption process, there are all sorts of commodity price and competitive dislocations. Investment and Wall Street analysts then take the most dire view of everything as they can only see the short term. I call this the "end of the world" Wall Street viewpoint. We see it all the time. Just in the past couple of years: Apple (at $125), Netflix (at $60), Facebook (at $18), the airlines stocks, and so on. It is all part of the cycle of business and how people are so short term oriented. It is these dislocations and short term-isms that give people the opportunity to buy companies like CLF at $4-5.
...The big three have no doubt discussed this possibility internally and they are all as a matter of good business practice under any business conditions seeking to cut costs and lower the production cost. Lowering production costs allows the big three to play their "do not blink" game even longer. But prices are falling much faster than they can cut costs. Clearly, supply and demand have to be brought into balance through a combination of demand, supply levels (global production levels versus plant closures) and price. If the producers oversupply the market, price will be the determining factor in crushing the marginal producer and forcing these players out of the market and thereby reducing supply.
What does this have to do with CLF. Almost nothing. CLF is a US iron ore play and the dynamics of this market are completely different than with the China situation. The only issue relating to CLF is if the Chinese market for internal steel (not iron ore) consumption falls, then the Chinese steel producers may attempt to export more finished steel to the US. This would hurt the US steel producers who would cut production and reduce their orders for iron ore from CLF. That said, the US government has always responded quickly to Chinese dumping of steel into the US market by means of raising tariffs. I therefore think that the risk to CLF from Chinese steel dumping is not a serious issue.
...The Big Three continue to crank out iron ore production as evidenced by the rising volume exports reported out of Australia's largest ports and reported in their own financial disclosures. Every sale from the Big three to China must displace a sale from another producer, generally a local mining company in China. That displacement is achieved by lowering the price. The Chinese producers, who have higher cost structures, are eventually forced out of the market, much like Atlas in Australia has been. These closures reduce supply and tend to eventually bring the market back into supply/demand balance.
Each of large three global producers do not want to cut their own production as they figure that if one of them does that , then the other two will just keep producing and sell the volumes that the other player has curtailed. It in effect becomes a game of who blinks first. No one is blinking. It is hard for the big three to shut capacity as they have just gone through a lengthy process to expand capacity. They also figure to drive out the local Chinese mining companies over time with the lower iron ore price. The short term price pain will result in fewer competitors or higher market share over time. Supply and demand and price will eventually stabilize.
With that said, how low does the Chinese iron ore price have to go. It depends on supply and demand. If demand picks up, then the price stabilization process will occur sooner. If all the producers in the world try to hang on and the supply does not decline soon, then the price will fall further. This seems to be what many analysts are projecting. In that case, eventually the price falls to the point where producing iron ore in unprofitable for everyone. Financial losses will cause action to be taken, much like what happened at Bloom Lake. More plant closures will occur. Even the big three could shutter production as shareholders would demand it.....
Here is how I see it...
With China growing leaps and bounds and their steel demand rising over the past 20 years, the large (and many smaller) iron ore players put in large iron ore mine expansion plans or planned to develop completely new mines. And to meet the projected demand from China for the next 20 years, it was going to take sizable increases in production. This is not something achieved overnight. One can not just bring manufacturing capacity on line so fast. Increase utilization rates with existing open pit reserves at an existing mine are certainly easier to achieve than developing a totally new mine, but major new expansions were going to be required to meet the China forecasts.
So, six to ten years ago, the leading companies (and many new players) started on expansion programs. BHP, RIO and Vale were all in there with expansion plans. Atlas and Fortescue in Australia were major new players that spent large amounts of capital bringing new capacity on line. CLF also tried to get its hand in the game with the purchase of Consolidated, whose primary asset was the Eastern Canada Bloom Lake iron ore mine. I do not know what quantity of new local Chinese iron ore expansions were put into effect, but I suspect that they were ramping up too. The target market for all of this new iron ore was local Chinese steel mills.
In the past couple of years, much of this new capacity has come on line, creating an increase in available iron ore to China. This increase in supply now has faced a market where Chinese GDP growth rates have slowed from 10-12% to now about 7% annually.
The result has been a sharp decline in the Chinese iron ore prices (Platts Index). This has pushed Atlas to totally cease production and resulted in the closure and write-down of CLF's Bloom Lake mine. There has also been local Chinese iron ore production that has been shuttered. Nonetheless, the big three producers have not cut production levels in a well supplied market.....