OrenincTV Episode 21: On Cliffs Natural Resources
If Cliffs is split up, in the next economic downturn, the US assets will be sold to Mittal for 5 cents on the dollar. They will wait for Cliffs to get weak, because they are the only buyer of the US assets. No one else is going to take them. The fact is, the only way to get long-term shareholder value is to keep the company together. Keep in mind that all the iron ore business is linked and, no matter what you think, EVERY part of Cliffs is exposed to China.
I like complex tax structures for low cost oil companies, but I think Cliffs is a high-cost, marginal iron ore producer and if you wrap it in new clothing, it still will be that, but it will be much easier to destroy.
Comments
US Hot Rolled Cold steel prices are about 15% higher than global prices. This is already leading to a surge in steel imports:
http://www.steel.org/en/sitecore/content/Steel_org/Document%20Types/News/2014/~/media/Files/AISI/Press%20Releases/2014/SIMA%20January%202014.pdf
As you correctly point out, global steel prices are much more trad-able and fungible than global Iron Ore prices. The market mechanism for lowering US Iron Ore and US coking coal prices is working the way you say it will.
Do you see more US coking coal production capacity being idled in the coming year? Possibly through the bankruptcy of more coking coal producers such as James River Coal.