Cliffs Natural Resources 2Q17 Earnings Call Notes

C. Lourenco Goncalves – Cliffs Natural Resources, Inc.

Section 232 investigation should help us

“The fact that we are in the United States. The American business environment is predictable, and we operate in a very mature economic and legal environment. The most recent example of our country taking real action was the implementation during the last year of the Obama administration of several anti-dumping and countervailing duties, imposed against illegally traded steel from several different countries. While some countries and some players within the United States did not get the underlying message of these three cases and continue to find ways to cheat the system, the next thing is a Section 232 investigation, self-initiated by the Trump administration. The Department of Commerce recognized the importance of steel to our national security, not just on defense-related products, but on a lot of other things, from infrastructure to energy. While the 232-final determination has been delayed for reasons completely unrelated to the issue itself, we remain confident that some level of restrictive measure will be recommended soon.”

I continue to see a lot more reasons for iron ore prices to go up than down

“Unlike the vast majority of the experts and commodities desk, I continue to see a lot more reasons for iron ore prices to go up than to go down. There will be always volatility, even extreme volatility, as we have seen during the last six months. But I definitely recognize the conditions for iron ore prices to trend upward. Goldman Sachs got to this conclusion during the night today. That’s good to know.

China will continue to need iron ore to meet their production and employment needs, not even consider the impact of the one-belt, one-road initiative. And last but not least, with all the geo-political issues we see in the world right now, iron ore becomes that much more important, as it pertains to several countries’ defense and military endeavors. Again, I will be more than happy to elaborate on that in the Q&A, if you feel like doing so.

The only thing that I could see causing iron ore prices to go down, is if BHP keeps the same failed playbook that they have been operating under for way too long. ”

The big iron ore companies are just selling to traders

“what these guys are doing, these guys mean, for abundance of clarity, Fortescue, BHP and Rio Tinto, Vale and even the midget, Roy Hill, they sell to traders. And these traders do not have blast furnaces. They buy because it’s cheap to borrow money in Chinese banks. Then they put that iron ore in the ground, not in a blast furnace, at the port. And then they go back to the banks, and say, hey, I have collateral, can I borrow more? And the banker say, yes, and they borrow more, and they buy more for the same idiots. And then their port site keeps growing because there is no blast furnace over there. But they need to open space for more. It’s not because they want to sell anything. They’re in the business of buying more, borrowing more because they use money for other things besides iron ore. But they need to open space. Then they go ahead and sell for any price to the blast furnace, the same blast furnace that the miners would sell to. That’s my problem with the business in Australia. Then comes the question, will this be happening forever? Yes or no? Of course, the answer is no. One day, this bubble will burst. And on that day, people will say, oh, we are surprised that we are not seeing iron ore inventories going up. ”