U.S. iron-ore company Cliffs sees long recession
By Steve James
NEW YORK, Oct 30 (Reuters) - Cliffs Natural Resources Inc (CLF.N), which has cut back production of iron ore pellets for steel-making because of the economic downturn, said on Thursday it expects the recession to last at least through next year.
Chairman, President and Chief Executive Joseph Carrabba also said he expects "protracted" contract negotiations with customers for its metallurgical coal, another raw material for steel production.
"What you are seeing is nervousness in this economy and a reaction by customers to cuts in the steel industry," Carrabba told Wall Street analysts on a conference call.
"This is a difficult time for buyers to come to grips with high coal prices and we expect protracted negotiations."
He said Cliffs would like to have 75-80 percent of its 2009 coal production committed to a contract price by the end of this year. "Then in 2010, we want to take advantage of the market as met (metallurgical) supplies are short despite steel cutbacks."
Cleveland-based Cliffs' relatively small North American coal operation is losing money, with an expected 2008 average price of $93 per ton exceeded by a cost of $97.
Asked about the company's pending acquisition of coal miner Alpha Natural Resources (ANR.N) in light of the economic slowdown, Carrabba said: "We have not changed our view of the growth of the steel industry. We believe a super-cycle is here and we are just in a hiccup at the moment.
"We will continue to look at other steel-making materials as well as met coal in the future," he said.
As for the present, Cliffs was planning for a long year ahead. "Our view is that the recession will hold longer because the (high) inventory is not just in the steel industry but the housing and auto industries too.
"We think there will be a long and protracted recession through 2009," Carrabba said.
The company has scheduled Nov. 21 for a shareholder vote on the Alpha deal. Harbinger Capital Partners, the largest Cliffs shareholder, opposes it and investors seem skeptical it will be closed, at least on current terms.
Late on Wednesday, Cliffs reported a sharp rise in third-quarter profit despite a $94 million hedging loss mainly due to a unexpectedly weaker Australian dollar.
Net income rose to $174.9 million, or $1.61 a share, from $56.9 million, or 54 cents a share, a year earlier. Revenue more than doubled to $1.19 billion.
Last week, Cliffs announced production curtailments at two of its six North American iron ore mines. The company will temporarily idle two small pellet furnaces at Northshore Mining and one at United Taconite, all in Minnesota. The three furnaces have combined monthly pellet production capacity of approximately 300,000 tons. Cliffs can produce 37 million tons of iron ore pellets per year.
Cliffs said the curtailments were necessary to bring production levels in line with demand.
Shares of Cliffs were down 67 cents or 2.5 percent at $26.52, off an earlier low at $25.52, on the New York Stock Exchange at midday on Thursday. (Editing by Matthew Lewis)
