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Cliffs Declines After Morgan Stanley Downgrade

Cliffs Natural Resources Inc., the largest U.S. iron-ore miner, tumbled to the lowest in almost four years after analysts at Morgan Stanley and Credit Suisse Group AG said new supply in North America may reduce the commodity’s price.

Cliffs fell 14 percent to $18.46 at the close in New York, the lowest since March 31, 2009. The shares have declined 52 percent this year, making it the worst performer on the Standard & Poor’s 500 Index.

Iron ore prices may drop to $110 a ton as about 13 million tons of iron-ore pellet supply comes online in the North American Great Lakes region, a 60 million-ton market, Morgan Stanley analysts led by New York-based Evan Kurtz wrote today. Kurtz downgraded his rating on Cliffs to underweight, equivalent to sell, from the equivalent of hold.

The steelmaking ingredient traded at the Chinese port of Tianjin rose 0.2 percent to $137.40 a dry metric ton today, according to data compiled by Bloomberg from The Steel Index, a trade publication.

“There are structural changes taking place in Cliffs’ key Great Lakes market that will compromise its pricing power and erode the earnings potential of the U.S. iron-ore business,” Nathan Littlewood, an analyst at Credit Suisse Securities Inc., wrote in a note published after markets closed yesterday. Cliffs shares may fall to $10, Toronto-based Littlewood said.

Dividend Cut

Cliffs, based in Cleveland, plunged 20 percent on Feb. 13 after the company said it would cut its dividend and issue shares amid slumping global iron-ore prices and cost overruns at its flagship Canadian mine.

The company’s $800 million of 6.25 percent bonds due October 2040 fell 1.9 cents on the dollar to 94.9 cents to yield 6.66 percent at 12:40 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Sal Tharani, a New York-based analyst at Goldman Sachs Group Inc., upgraded his rating to hold from sell after the company’s actions shored up its balance sheet, he said in a note published today.

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