Cliffs bullish on iron ore prices, ups U.S. exports

Thu Feb 17, 2011 7:26pm GMT

* CEO bullish on iron ore pricing

* Cliffs boosting iron ore pellet exports

* Stock rises 8 percent (Adds more CEO, CFO comments)

By Steve James

NEW YORK, Feb 17 (Reuters) - Cliffs Natural Resources Inc (CLF.N: Quote) is boosting its U.S. exports of iron ore pellets by up to five times this year to take advantage of "exceptionally high" global prices driven by growing demand from steelmakers, its chief executive said on Thursday.

"Although the exceptionally high spot prices experienced in recent weeks are most likely not sustainable in perpetuity, I do believe there are a number of factors that support high pricing over the near term," Joseph Carrabba told Wall Street analysts.

He noted recent cutbacks on exports by India, a supplier of about 100 million tons of iron ore into the seaborne market. Also, higher labor, energy and material costs are likely to affect China's marginal cost producers, potentially raising the floor in spot market pricing.

"These points, coupled with the increasing steel production capacity in emerging economies, will likely bode well for seaborne iron ore pricing,

"This would naturally have a positive impact on our realized revenue in the near future," Carrabba said on a conference call.

Cliffs sold pellets last year at around $150 per ton, and officials said for 2011 it is assuming a 35-percent increase, putting the price at around $200 a ton.

Carrabba said Cliffs sold nearly 400,000 tons of pellets from its Minnesota and Michigan operations into the seaborne market last year. "Given the current demand for iron ore products around the world, we expect to place approximately 1 to 2 million tons of pellets from these same U.S. operations into the seaborne market in 2011."

Total North American iron ore sales volume is expected to be about 28 million tons in 2011 -- up from 26.2 million last year, Chief Financial Officer Laurie Brlas said, citing improved market conditions.

She also said Cliffs expected to generate more than $2.7 billion in cash from operations in 2011, more than double last year's. Capital expenditure would be about $700 million.

Their comments came a day after the Cleveland-based company reported fourth-quarter earnings that easily beat Wall Street expectations. The growth stemmed from Cliffs' move to increase exposure to global pricing, which was a big part of the strategy behind its pending $4 billion acquisition of Canada's Consolidated Thompson Iron Mines Ltd (CLM.TO: Quote).

Cliffs stock was 8 percent higher at $100.30 in afternoon trading on the New York Stock Exchange on Thursday,

Asked about the global outlook for iron ore, which is a key ingredient in steelmaking, Carrabba said the company saw very strong sales in China, where most of its ore pellets went into steel mills that make infrastructure-type products.

"We believe, with the government funding, they will continue on with the infrastructure build-out in China.

"We still feel very confident that our continued sales at 9 million tons coming out of Australia are going to continue throughout 2011."

On North America, he said he was a little more bullish than last year since steel mill utilization rates were rising.

"So with a rising economy in the U.S. it only bodes well for the volumes of sales to come forward for Cliffs," he said.

(Reporting by Steve James, editing by Gerald E.McCormick,Phil Berlowitz, Sourced:Thomson Reuters)

Tags:Cliffs Natural Resourced Inc, iron ore prices, U.S.exports, raw material, steelmakers, steelmills,seaborne market, China, iron ore pellet exports,North America, Canada's Consolidated Thompson Iron Mines Ltd, acquisition,Carrabba,Australia