Cliffs Natural Resources Inc (NYSE:CLF)- affected by unnatural dip in ore price
On 31 May 2013, iron ore prices touched a 7-month low of around $111 per metric tonne. The price has crashed 30% from the $159 that it stood at in February. Exactly how does this affect mid-cap iron ore producers such as Cliffs Natural Resources Inc (NYSE:CLF) and African Minerals Limited (LON:AMI)? The bigger players have not flinched. As a matter of fact, they stand to gain when something like this dip takes place. It means that if a smaller company does not have the holding-power, it will be out of the competition before you can spell ore.
And so, Cliffs Natural Resources Inc (NYSE:CLF) has now been pushed into a corner since it is definitely a bullish stock. Close to 1/8th of the company’s production is attributed to U.S coking coal. And this segment is a shade worse than its iron one. The minute the ore dips below a sustainable $120 per ton, the company finds itself on shaky ground. CLF is currently walking around with a debt-burden of $3.7 billion and only higher prices can help reduce it.
What is iron ore?
Typically, Iron ore is used to produce iron. This iron then goes into the production of steel which in turn is used in the manufacture of automobiles, ships, locomotives, beams in construction, furniture, reinforcement rods for concrete, tools, paper clips, bicycles, and literary thousands of other products. In terms of purpose and tonnage, steel is the most-used metal. Powdered iron is primarily used in magnets, metallurgy products, high-frequency cores, catalysts and auto parts. Radioactive iron is used in tracer elements for metallurgical research and in medicine. Iron blue goes into the making of dyes and pigments. Black iron oxide is used in magnetic inks and metallurgy amongst other things.
At the end of the day, what this means is that there really is no substitute for iron. Thus any fluctuation in iron ore production or prices tends to affect a host of industries that depend on the metal to produce their products. And so, a shake-up in prices, such as the one that the ore is currently experiencing needs to ease-off. That’s when Cliffs Natural Resources Inc (NYSE:CLF) will breathe easy.