Cliffs Strategy at Risk Without Steel-Import Fix, CEO Says

Updated on

Cliffs Natural Resources Inc.’s strategic plan to decrease its exposure to low global commodity prices is at risk without limits on unfairly traded steel, said Lourenco Goncalves, chief executive officer of the largest U.S. iron miner.

When he took over the company after an activist-investor revolt, Goncalves had promised to end Cliffs’ vulnerability to the oversupplied seaborne iron market. Cheap imports of steel made from iron mined abroad also expose Cliffs to overseas markets as his customers struggle.

Producers of the metal including U.S. Steel Corp. and Cliffs customer ArcelorMittal filed a U.S. trade case on June 3 against corrosion-resistant steel from five countries. If steel trade cases fail, Goncalves said he would have to find another way to assure his Cleveland-based company’s performance is aligned with U.S. economic growth instead of a global commodity slump.

“If I don’t have the trade case, I will have to figure things out,” Goncalves said this week in an interview. “It is important for my clients. It is important for the market.”

China, the world’s biggest steel producer, is among countries unfairly subsidizing the metal, allowing the Asian country’s steelmakers to sell to U.S. buyers at unfairly low prices, Goncalves said.

“I’m a resourceful guy,” Goncalves said. “If I don’t have a trade case, I will figure out a way.”

Record Imports

While Cliffs’ customers sell to carmakers and other steel users who tend to make purchases based on long-term contracts, record imports have suppressed U.S. prices, harming domestic companies’ profitability.

U.S. steel capacity utilization dropped to as low as 68 percent in April after imports of all forms of the metal surged by 38 percent in 2014, according to data from the U.S. Department of Commerce.

Goncalves took over at Cliffs in August after a successful proxy battle initiated by activist investor Casablanca Capital LLC. He said he would reverse the company’s previous strategy of global expansion which left Cliffs saddled with debt as commodity prices slumped after 2011, and try to sell the company’s Australian mines before they are depleted in three years.

Since becoming CEO, Goncalves has replaced Cliffs’ entire board, sold chromite and coal mines, and begun court-supervised debt restructuring proceedings for two Canadian iron assets.

Cliffs fell 1.6 percent to $5.43 at 1:42 p.m. in New York. The shares have tumbled 61 percent in the past 12 months while the price of iron ore sold in China has dropped 28 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE