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. ”

Cliffs Natural Resources 1Q17 Earnings Call Notes

C. Lourenco Goncalves – Cliffs Natural Resources, Inc.

Demand for steel in the US is good

“One thing we’ll always be confident in is the resilience of the U.S. economy, and by extension, the health of the domestic steel industry. The steel prices in the United States are at their highest since I have been with Cliffs, and all signs point to a sustained healthy year. The noise about Chinese and domestic steel price arbitrage is irrelevant now with the trade cases we have in place and a strong commitment to enforce them. The reality is demand for steel in the United States is good. Our clients are doing well in their markets, and the measures to curb illegally traded imports have been put in place.”

I don’t think you need to be concerned about trade cases with Wilbur Ross around

“Just to give an idea, Mr. Wilbur Ross was the guy that put together Bethlehem Steel and LTV Steel just after the debacle of the two companies around 2001, 2002. And that was a result of trade case. So, Wilbur Ross knows trade cases very well. So, I don’t know what you’re concerned about”

US sectors are in good shape

“The part of the world that you should be focused on at this point is the United States of America, because our economy is growing. All sectors are in good shape. Some sectors are surprisingly strong at this point like agriculture, like non-residential construction. Automotive has not come down. Actually, we are seeing automotive turning back up. And we have a limited amount of domestically generated steel available for all these uses.”

Cliffs Natural 4Q16 Earnings Call Notes

C. Lourenco Goncalves

We finally have sanity back in the seaborne iron ore market

“The most important point I would like to make today, we finally have sanity back in the seaborne iron ore market. I truly commend Rio Tinto and Vale for eliminating their reckless behavior that had infected the market for a number of years and destroyed several billions of dollars in equity value. Once the market analysts saw iron ore prices at $40, they believed that this was the new normal. Not the case. For a controlled commodity like iron ore, in which only three big players have the ability to move market price up or down, this should never be the case. Iron ore at $40 is not, nor will it ever be normal.

Encountered new dynamics in Chinese market

“We have also encountered some new dynamics in the Chinese market, between the improved profitability of the Chinese steel mills, the elevated prices of coking coal, and most importantly the increasingly serious crackdown on pollution sponsored by the Chinese Government, demand for higher-grade iron ore has risen significantly. As a consequence, low-grade 56% iron content ore is having a tougher time to find a home with good clients. This is evident as we observe the wider spread between the 62% Fe reference price in the price of low iron content ore.”

Iron Ore piling up at Chinese ports is low quality

“Previously, when the Chinese mills were not being forced to pay attention to pollution and coking coal prices were extremely low, iron content didn’t matter. Now, it does matter. And that’s why we continue to see higher ore inventories at the ports. They stopped accumulate in port side; it’s not the good ore. It is pollution heavy, low-iron content material. In some, these port stocks could stay high or even go further up and that will continue to have a very limited influence on the 62% iron ore price index.”

Trump rhetoric adds to the positive environment

“In the U.S. market, on top of the reduction of imports associated with the positive outcome of the trade cases, a major event with a potential to positively impact the market in 2017 and beyond is the result of the presidential election. All other matters aside, President Trump, delivers a message that is positive for Cliffs and for our customers, the domestic steel mills. The stated commitment of President Trump to create real conditions for the resurgence of manufacturing in America can only help and enhance the environment we are operating in. While we cannot give the new president all or even most of the credit for this improved outlook as it’s actually a result of the 2016 trade cases, President Trump’s directives on buy American and build in America have the potential to multiply the benefits of the current positive environment for manufacturing in the United States.”

Service centers have also been beneficiaries of dumped steel

“Talking about bad actors, foreign steel mills and trading companies benefiting from subsidies to produce steel and then dump it into the United States are not alone as perpetrators of this illegal activity. A number of steel buyers within the boundaries of United States including, but not limited to, distributors and service centers have built their respective business on being the final recipients of illegally traded steel. With that, they benefit from an unfair advantage against other steel buyers in service centers that play by the rules.”

If Trump delivers on a portion of his promises it will be great for us

“In sum, if President Trump delivers on, not all, but just a portion of what he promises he’s going to deliver while in office regarding domestic manufacturing, and with the 2016 anti-dumping countervailing and circumvention trade cases in place and being strict to enforce it, Cliffs will benefit significantly in 2017 and beyond.”

China is transitioning

“Iron ore demand, okay. Well, China continues to perform. China is moving toward a more responsible way of performing. The pollution combat in China is real now and we are going to see more and more and more and more moves toward China becoming a lot more like Japan, a lot more like South Korea, because don’t forget, Japan and South Korea in the mid- to late-1990s transitioned from what China is now to what they are now. So, the dynamics will be exactly the same.”

China is going to keep buying Ore

“We’re not going to see China not producing, not buying iron ore, not deploying fixed assets. It’s the opposite. They will continue to grow fixed asset investments. They’ll continue to buy iron ore, but they will be more selective. So, the times of the so-called low-cost iron ore – and nobody talks about iron content, nobody talks about other properties, nobody talks about residuals – it’s gone. China is no longer in elementary school. China is at least a senior in high school. Wait until China gets to college, it will be impossible for this guy that produce black stuff, and they called it the black dirty iron ore, to continue to be called suppliers of iron ore. It’s a different ballgame that’s moving in China. But demand is phenomenal. It’s great. We’ll continue to support production of good stuff. And the bad stuff, for now, we accumulate at the port. Very soon, we will be accumulating in Australia. ”

JP Morgan Analyst

sucking up to management

“I just wanted to say a couple of things. First of all, congratulations, but most of all, thank you for making my job so much easier in covering Cliffs. You’ve been so honest and you’ve given everyone the details of your analysis of the iron ore marketplace over the last year-and-a-half. You’ve been spot-on and anyone who listen to you would be spot-on too with their call on Cliffs. So again, congratulations and thank you.”

Cliffs Natural Resources 3Q16 Earnings Call Notes

C. Lourenco Goncalves

No more race to the bottom in iron ore prices

” In the third quarter, we witnessed some remarkable stability in iron ore pricing with the index trading within a tight range for the entire quarter. Once again, the analysts who predicted that iron ore prices would fall off a cliff were wrong. Wrong again. As I always say, iron ore is not your typical commodity as the vast majority of the supply is controlled by a small number of producers. For some time, iron ore prices were going down because a few executives in positions of power with the major iron ore producers were working very hard to drive these iron ore prices down. However, after the Boards of Directors of the Australian producers took action and all but one of these executives were let go from their respective jobs, these companies under new management are now generating better margins and more decent returns for their shareholders. No more race to the bottom. The Australian-Brazilian championship of stupidity is over. Check the box.”

Steel distributors are keeping their inventories dangerously low

“Back in our domestic U.S. market, the price of steel was not exciting during the quarter. We believe the recent weakness in steel prices is demand driven rather than supply driven. Our customers, the blast furnace steel mills, have remained disciplined. Unfortunately, the steel buyers, particularly the service centers, have decided to keep their inventories dangerously low, and as such their steel mill order books were weak. This being said, the illegally dumped steel from other countries no longer represent the type of threat we were worried about a few months ago.”

DRI fed EAFs are the future of steelmaking in this country

“Now with the steel industry in the United States readily moving toward a different method of production, we need to evolve again. I believe that DRI-fed EAFs is the future of steelmaking in this country, and Cliffs will play an active part on this process as well. We have made great progress on this so far, as at our Northshore mine, we have reduced and continue to produce DR-grade pellets for shipment to our client in Trinidad.”

Dumped steel is illegal stuff. We’re going to get the slowest guys

“At this point, dumped steel is illegal stuff. If you are a service center, your business model is based on buying illegal stuff, you are putting yourself in a situation that can be very, very dangerous for you, for your business and for yourself as an individual. We are getting evidence, and of course we are not going to hit a lot of people, we’re going to hit just two or three. You don’t need to – when you are running from a lion, you don’t need to be the fastest you just need to be faster than the other guys. So we’re going to get the slowest guy, one more or two, but this is coming.”

Service center inventories too low

” I see a lot of service centers working with inventories below two years. That’s crazy – two months, I’m sorry, two months. You can’t operate a service center business with inventories that low. Service centers are in the business of carrying inventory. If they don’t want to carry inventory, they’re in the wrong business. So as prices start to go back up, even the guys that are not doing anything illegal, they are exposing themselves to price appreciation that can be extremely bad. So these are the main things about the current situation in service centers. Service centers provoked the weakness of prices one more time.”

Don’t get distracted by this temporary weakness in prices in the US

“So don’t get distracted by this temporary weakness in prices in the US domestic market because these service centers that are working with less than three months of inventory, two months of inventory on hand, they will have to restock and I don’t see them to be able to even get all this – they need to restock all of them altogether, let alone to accommodate their typical double order, triple order that they do in situations like that. So we are going to see a price movement up here in the United States, and this price movement up can be pretty significant, pretty aggressive. And then things will slow down a little bit and then they will stabilize.”

Imported dumped steel is over, forget about it

“What we are now going to see next year in this domestic market is imported steel. Forget about it. That thing is over. That thing is over. Illegal dumped imported steel in this country is over for 2017. It doesn’t mean that prices will go to $1000 per ton, that’s not what I’m saying. But they will go back to the high $500, $600 mark. ”

You can be bullish but I can’t, because if I’m bullish and wrong I lose a lot of people a lot of money

“All right. So just one thing. I’m not bullish. You can be bullish. I can’t. Because if I’m bullish and I’m wrong, we are going to hurt a lot of people, a lot of investors. A lot of money will be lost, money that’s mine, money that’s not mine, from my investors. So I’m never bullish. I’m always very, very, very protective over our thing. That’s the reason we have been so successful because I play with a lot of caution – with a lot of cushion in our forecasts.”

Rio Tinto 2Q16 Earnings Call Notes

Rio Tinto’s (RTPPF) CEO Jean-Sebastien Jacques on Q2 2016 Results

Pilbara cost is $14.30 per ton

“Our Pilbara business, they were operating cash flow of $9.71 billion, cost reduced by $138 million in the first half and fully loaded unit cost decreased from $16.20 per ton in the first half of 2015 to $14.30 per ton in the first half of this year. The business as again delivered strong margins, with an EBITDA margin of 58%. But there is more we can do and we’ve three stars already to move iron ore, we will continue to focus on maximizing the value of our Pilbara system.”

It’s clear that construction industry has picked up in China

“There is no doubt that the market remains volatile and we have seen higher prices in the recent months. This was mainly due to improved macro-economic trends especially in China. On my most recent trip to China, I met with a number of our customers, partners and government officials. It is clear the construction industry has picked up with the drawdown of housing inventory. This positively impacted commodity prices such as iron ore and met coal. But the recovery is not wide ranging and it’s mainly driven by credit.”

Inventory in tier 1 and tier 2 cities is down

“Had the opportunity in the last few months to go to China to meet some of our customers, some of our partners and some of the government officials. As I said earlier, it is fair to say that the construction market will pick up in the first half of this year, of the housing inventory of stuff where you want to apply especially in Tier 1 and Tier 2 cities of have gone down.”

The iron ore strategy is about value not volume

“we stated a few months ago, the iron ore strategy is not about volume, it’s about value, okay. We have the infrastructure for 360 at the port level, we have the capacity more in the mine, we don’t have it today in terms of railway. But what we are trying to achieve is about the optimization of free cash flow profile for the next five to 10 years down, and it’s synchronization of three things, it’s about the cost, it’s about the mix, products and about the CapEx. And the old question for us is what are the right decisions, what are the right parameters that we should target in order to optimize the free cash flow of the business for the next 10 years. So we will not give you any indication of when we will get to 360 because that’s now irrelevant, we will get there at the right time. As I said, the iron ore strategy is about value and not about volume”

A lot of uncertainty around China

“Malaysia, anyway. So what we are just saying is there is a lot of uncertainty around China that is as simple as it was. So we need to make sure that under any kind of scenario we, all assets perform well and our free cash flow positive. And that’s what we are doing. We don’t control the market. Now if the market is better and prices are better for sure we would be happy but we can’t assume a quick recovery China that will not happen. The truth of matter is quite simple, China is slowing down that’s the fact, the top of growth in China is changing dramatically that’s a fact as well. Now I had the question earlier today is if I look at the order books that we have and my point is not really but I know which is about copper as well as and this could be bauxite we do not have any issues in placing material into China. So for planning purposes we are very cautious but at the same time is we don’t have any issues today in placing the material.”

Cliffs 2Q16 Earnings Call Notes

Cliffs Natural Resources (CLF) C. Lourenco Goncalves on Q2 2016

We won

“To those of you who witnessed Cliffs make it through this difficult time and now believe we have gotten to a great spot, we would like to say four things. First, yes, we won. All the problems we encountered here two years ago have been resolved. Second, we knew we would win. Third, we are just getting started. Fourth, Cliffs’s best days are still ahead of us.”

Cheap iron ore allowed Chinese cheap steel to flood foreign markets

“Harding’s used car lot wisdom does not apply to the vast majority of his clients, such as the Japanese and South Korean steel mills whose respective domestic markets were flooded with cheap Chinese steel enabled by cheap iron ore.”

I’m encouraged by RIO’s new leadership

” I am encouraged by the refreshing message coming out of Rio Tinto’s new leadership. It is good to hear that the leading iron ore miner is now pursuing value, performance and shareholder returns instead of the misguided goals of the previous regime, market share, volume for volume’s sake and not paying taxes in Australia.”

Lower foreign steel prices was the consequence of illegal dumping

“the verdict applied to all trade cases so far confirmed what we have always said that the lower steel prices we see from foreign sources are not a consequence of these foreigners being more efficient or more cost effective. They are just the consequence of illegal dumping. Based on previous anti-dumping and countervailing cases, the duties imposed at this time around will be in place for at least the next five years, until they are due for a sunset review, and will likely stay in place for some more years after the sunset review.”

We think our 500m 2017 EBITDA forecast is conservative

“Of course, if the eternal bears at the commodities desks of the big banks and the research analysts that get their steel price information from middlemen working out of their respective basements are all correct, our 2017 forecast of more than $0.5 billion of EBITDA in 2017 would not be achieved. On the other hand, any improvements beyond current international iron ore prices or domestic steel prices will cause our actual 2017 EBITDA to increase above the forecast. In sum, we believe that our $500 million forecast is actually pretty conservative.”

BHP (BHP) CEO Andrew MacKenzie

BHP (BHP) CEO Andrew MacKenzie says it will be another 10 years before the iron ore market comes into balance 

“There are some commodities, like oil and copper, where there is a natural decline because pressure drops off, grade drops off.  One of the markets that will take longest to come back into balance is the iron ore market.  The reality is we’ve settled down now to a price that we would say is more realistic on the basis of fundamentals of supply and demand.  We’ve had such a long boom. To walk that through, in my view, may take another 10 years.”

So you’ve got to keep your cost structure lean 

“Consolidation, particularly of the high-cost producers, it will carry on much longer than you think they humanly should.  In the meantime, you’ve got to be at the bottom of the cost curve, you’ve got to be doing everything I’ve said, running things in the most productive way possible, or your hedge funds won’t want to invest in us.”



Source: Bloomberg Interview

Cliffs Natural 1Q16 Earnings Call Notes

Cliffs Natural Resources (CLF) C. Lourenco Goncalves on Q1 2016 Results

We finally saw boards of the major iron ore producers rein in management teams

“I have spent a great deal of time on these quarterly calls explaining that the majors’ stated intention to overproduce iron ore and push iron ore prices down to force their competition out of business was their strategy of self-destruction. Several times I expressed my belief that the Board of Directors of these companies would act to separate their respective companies from the individuals who publicly say that lower iron ore price is something beyond their control and not a consequence of what they do, how they manage their business, and mainly how they communicate their actions to the public. Well, we finally saw the inevitable come to fruition during the past quarter.”

High level departures at BHP and Rio hopefully portend more rationality in production

“We can only hope that these high level departures are indicators that, going forward, the individuals that are now in charge at these majors will show better common sense and will express themselves in public venues in a more responsible manner, one that’s best for their shareholders, very importantly, for their host country, Australia”

The shrinking footprint of US steel is positive for Cliffs

“What’s good for Cliffs is that one steel company suffering the most is not one of our clients, it is U.S. Steel. That has been a real positive for Cliffs’ well established long-term customers. What’s good for Cliffs’ customers is good for Cliffs. And the shrinking steel footprint of U.S. Steel is actually an overall positive for Cliffs. I will be glad to explore this issue during the Q&A portion of the call.”

I’m a shareholder and everything I do will be to protect shareholders

“Look, Nick, I am a larger shareholder, every single action that I have taken in this company here since August 7, 2014 was to protect the shareholders. I will continue to do so. Everything I will do going forward will be exactly like everything I have done so far, to protect the shareholders”

This business is not about cash production costs, it’s about cost and value in use

” price will not go below $45 because below $45, the majors get crazy. The majors who start to try to stretch payables, things like that. Because it’s not about – this business, Tony, is not about cash production cost per ton, this business is about cost and value in use. Cost per ton is just a metric. You produce for a demand that doesn’t exist, you are going to get hurt. You have to carry a terrible, horrible, tremendous overhead.”

Goncalves is still crazy

Analyst: Yes, hi, Lourenco. My question was answered already.
C. Lourenco Goncalves – Chairman, President & Chief Executive Officer: But mine was not, what’s the current price expectation of the desk of JPMorgan for iron ore, Mike?
Analyst: Well, let me just say they’re below your expectations. I realize that our commodity team (44:59).
C. Lourenco Goncalves – Chairman, President & Chief Executive Officer: When are you guys going to fire these guys at the desk; they are making your company look ugly.”

China will have to decide whether they will be a superpower or a rogue country

“the problem in China right now is how China will position themselves to continue to behave as a superpower and not to behave like a rogue country. China is in a very decisive moment. Are they going to be part of the developing world or they are going to continue to be something very big but very bothering (46:57) for everyone else. And I believe that I know the answer. I believe that China will be a superpower, will be a first world country.”

Iron ore is not a typical commodity

“The problem is not the Dalian Commodity Exchange, the problem is not the behavior of the Chinese. The problem is the fact that iron ore is not pork bellies, iron ore is not soybeans, iron ore is not gold, iron ore is not a commodity like any other commodity, iron ore is a controlled commodity. There are three companies that control everything in the iron ore business, and four companies that, together, have 84% of the market. BHP, Rio Tinto, Fortescue and Vale. So it only takes one of this four or two of this four to say, enough is enough, or to start charging a premium over IODEX, or even say, you know what, my friends, Chinese, I’m not going to use your Dalian Commodity Exchange index anymore as my reference. You want to buy my iron ore, you’re going to have to negotiate with me one on one. It was like that before.”

There are four companies in iron ore that control everything

” there are four companies in the iron ore world that they can change everything, if they change their bad behavior in terms of pretending that they don’t have pricing power. They do have pricing power. These commodities are controlled commodities. Prices go up and down because of BHP, because of Rio Tinto and because of Vale. They can deny this as long as they want, but every time their stock price is in the trash can, they change their behavior. Every time their executives speak out of school (52:14), one is fired. So if the new guy that took over, over there, if they continue their speech, they will be next. “

Rio Tinto 4Q15 Earnings Call Notes

Sam Walsh

Signs of recovery in industrial demand are yet to emerge

“Signs of recovery in industrial demand are yet to emerge, and a prolonged downturn brings increased risk. Housing sales in China stabilized during the second half of 2015, but we are yet to see a turnaround in China’s construction activity. The transition to a less commodity-intensive and slower growth path, often referred as the, New Normal, is further compounded by these soft industrial trends.”

Assets for sale are distressed and for good reason

“Right now, there is distressed assets that are out there and they’re distressed for a good reason; high costs, low quality, no infrastructure, people trying to get rid of – I was going to say get rid of their trash, but I could never say that. But we are mindful that there could well be opportunities.”

We’d certainly be interested in copper

” Certainly in the area of copper, as Chris said, if there was an attractive project in that area, that could be of interest to us, at the right price or right value.”

Almost everything people use requires our materials

“As the world continues to develop, urbanize, industrialize, there is basically nothing that people use on an everyday basis that can be produced without using our materials, even down to the iPhone that’s in your pocket. All of these require us.”

We have confidence in the long term demand for iron ore

“In terms of long-term demand for iron ore, we still have confidence in this. As I mentioned, as the world continues to develop, urbanize, industrialize, whether it’s China, the ASEAN nations, India, Middle East, South America, Africa, all of these regions will require iron ore and steel as they urbanize.”

No one quite understands what Xi Jinping means by the new normal

“So we’re going through a transition period. Nobody quite understands what the new normal means when President Xi Jinping mentioned it, but I think he mentioned that – it means that things are not going to be quite as they were in the past and that we need to adjust to it, we need to be responsive to it.

Chris Lynch

There are some good assets on distressed balanced sheets but they’re not on the market yet

But the key issue really is around — there are some very good assets in what you’d probably describe as distressed balance sheets, and they’re not on the market as yet. But we’ve got a watching brief on a lot of things and we’ll continue to do that. Whether we get to pull the trigger on anything, we’ll always look at a hell of a lot more than we ever pull the trigger on. But we do have capacity in the event that we wanted to do that.

Cliffs Natural Resources 4Q15 Earnings Call Notes

Lourenco Goncalves

Iron Ore and Steel prices have changed a lot since 2014

“Let’s just start reviewing what changed since August 2014 when I joined Cliffs as Chairman and CEO. Iron ore prices changed a lot. The IODEX pricing for sinter feed fines sold in China went from around $100 per ton when I joined Cliffs to a recent low of $38 per ton. The steel prices changed as well. In the United States, they are above $600 per ton average price for hot-rolled steel in place since 2010; hit a 10-year low of $360 per ton in 2015. The steel production and the massive consumption in China changed too, despite the mistaking assumption by the Australian and Brazilian iron ore majors, insisting on increasing their supply to a never growing demand of their imaginary China.”

Major iron ore producers are now changing their rhetoric

“Last but not least, the elegant statements of the major iron ore producers are gone. Once is staking that the seaborne price in the $30 range was actually a good thing because it would make for the complete elimination of all other mining companies in the entire world. These major players are now realizing that they will bear the consequences of their own bad behavior. At this point in time, we can no longer hear their excitement about becoming low cost per ton producers by means of investing billions of dollars to increase their tons to unnecessary levels. In fact these companies are now realizing that the returns on investments that they promise to their respective boards have not been achieved and will not materialize.”

I laid out our strategy with the assumption that China’s steel demand is shrinking not growing

“16 months ago I laid out our strategy for Cliffs predicated on one fundamental fact, China’s steel demand is actually shrinking not growing. ”

It’s been reported that iron ore is building at Chinese ports again

“Demand for steel in China which account for about half of global steel production is shrinking, as the growth of their economy is lost, prompting the Chinese steel mills to a scale back production. It has been reported that inventory levels of iron ore at the Chinese ports continue to build over the past couple months heading back to above 100 million tons.”

The Chinese are shutting down steel plants

“Earlier this month, China’s biggest steel producing province announced that that the steel output will be cut this year to ease pollution and help curb oversupply. Three days ago, the Chinese Premier, Li Keqiang, released target numbers for steel production cuts to the order of 100 million tons to 150 million tons. The pressure on the pollution issue in China continues to mount.”

The Chinese can only solve their pollution problem with changes to their steel production process

“I have said this before, and I will state it again, China will resolve its pollution problem and it cannot do so without a major impact on its steel production, and a significant reduction of the consumption of sinter feed fines. One of the root causes of pollution in China is environmentally unfriendly characteristics of the production of sinter from iron ore clients. Differently from the United States and Europe, the vast majority of the blast furnaces in China use sinter as feedstock and not pellets. Making matters worse, a good number of Chinese sintering plants utilize lower grade iron ore sinter feed fines purchased from the iron ore majors, as well as from their own domestic mines.”

Pleased with the duties coming in from Washington on foreign steel

“So far I have been generally pleased with the preliminary duties coming from Washington on the steel trade case, especially the extremely punitive percentages placed on China. That has already started to positively affect the order books of our clients.”

In the US steel market there’s a clear difference between the end markets

“in the domestic steel market we have a clear differentiation between the steel mills that are focused on automotive and the high end of the market, more towards the cold-rolled and galvanize the steel and the ones that are more leveraged to help in. Fortunately we serve the ones that are more leveraged to the markets that are performing well like I provide the best example is the automotive market. So I will leave it at that but that’s the way we’re seeing our market developing in 2016.”

The impact of the trade case will be real

“the impact of the trade case will be real and it has already been started to be realized by the order books of the clients, our clients at least, and we expect that only to improve.”

This is the United States of America, we’re not going anywhere

“I would just one additional comment it’s more like a when we bring back production, not if, we will bring back production. This is United States of America, we’re not going anywhere. We’re going to continue to have a resilient economy, domestic steel production, domestic steel consumption, and we’re going to continue to sell pellets.”

Have a nice day Evan Kurtz

“But now that you’re talking here I have a question for you Evan Kurtz, why you’re still calling Cliffs high cost reducer, if you’re saying that we have been cutting cost so much… Yes, cost is my guidance; cost is numbers that we publish every quarter. We did it in Q3 2014, Q4 2014, Q1 2015, Q2 2015, Q3 2015, Q4 2015; you are still calling me high cost producer. So it’s hard to confuse people when they don’t want to be confused. Have a nice day Evan Kurtz.”

The mini mills of today are not the mini mills of the early 90s

“the mini-mills of today are not the mini-mills of the early 90s. The mini-mills of the early 90s were really low cost scrap, easily available driven big reservoir, nobody tapping to produce flat roll. That was when Crawford sued can [ph] corporation in 1989 and then Hickman, then the Steel Dynamics plants, and so on and so forth, you and I saw that happening real time. Fast forward we are in 2016 we have a much more material market a bigger huge presence, majority presence of mini-mills in the marketplace they have done a phenomenal job in improving the quality of their steel and their ability to produce high end materials and to be competitive against the Esperance producers, including some markets that were not the markets that were designed for as high as automotive.”