Iron, Steel Maker: Caution On 2010

The North American iron and steel business improved greatly in the second half of this year, but Cliffs Natural Resources Inc. will continue to operate conservatively until it is clear the improvement will be sustained, said Chairman, President and Chief Executive Joseph A. Carrabba.

“We’re pretty cautious going into the first half of 2010,” Mr. Carrabba said.

For the longer term, however, management is moving aggressively to expand and diversify, he said, including purchase of additional iron-ore assets, expanding coal-mining capacity and launching a major mining venture to produce ferrochrome, a raw material for stainless steel.

By the second half, it should be more clear whether economic problems in North America and Europe “have been totally sorted out,” he said.

North American steel mills are operating at nearly 70% of blast furnace capacity, Mr. Carrabba said, up from a low of 34% early in 2009. Blast furnaces consume iron ore pellets.

“We’re very optimistic about Asia,” he said, another major market for the iron-ore and metallurgical coal producer. “We didn’t see any slowdown in 2009″ in Asian ore and coal sales, he said, and expect continued strong demand in 2010.

Spot-market prices for iron ore in Asia are $20 to $30 a ton above contract prices, he said, indicating that demand is very strong going into 2010.

Cliffs management has a longstanding policy of offering guidance on expected output, but declining to make earnings forecasts.

Mine managers and employees did an outstanding job of reducing cost in 2009, Mr. Carrabba said, producing greater savings than top executives thought possible, without destroying morale or doing permanent damage to the business. The company is recalling some employees from layoff, he said.

Mr. Carrabba said the company expects to sell 17.4 million tons of North American iron ore in 2009 and receive payment for an additional two million tons to be shipped next year. For 2010, the company expects to sell 23 million tons. The 2010 sales will include an additional 2.5 million tons from Wabush Mines, a Canadian ore mine and pellet-making facility.

The Wall Street Journal

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