Cleveland-Cliffs’ third quarter net income was down by 79% compared to the same quarter last year.
The iron ore mining and processing company reported a net income of nearly $91 million, compared to approximately $438 million earned in the third quarter last year.
But, in the company’s report released Tuesday, it said last year’s third-quarter net profit included a change in foreign currency translation, resulting in a one-time gain of $228 million that quarter.
Cliffs’ nine-month net income was down as well. It reported a nine-month net income of less than $230 million, compared to approximately $519 million during the same period last year.
Its adjusted earnings before interest, tax, depreciation and amortization was just over $144 million, down from around $250 million in last year’s third quarter. That calculation is typically used as a measurement of a company’s operational health.
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An “unnatural” decrease in pellet premiums was the most surprising event of the third quarter, CEO Lourenco Goncalves said to investors during a call Wednesday morning.
It is a historic month-over-month decrease in pellet premiums, he said, which impacted the company’s exports.
“Irrational behavior” and “commercial incompetence” by the Vale mining company caused the pellet premium to tank, he said. In January, a dam at Vale’s Brumadinho mine in Brazil collapsed, killing more than 200 people. The subsequent closure of Vale mines sent led to a global shortage of iron ore, sending prices to a five-year high, but iron ore prices have since gone back down.
China and its surrogates overproduced steel, and then moved the excess steel to the European market. Vale, in response, left contracts in favor of European steel makers who then needed relief, he said. And, Vale changed its iron reference index to one that favors the company’s operations.
The pellet premium will start to recover soon, he said. But, if the differences in grades don’t improve,“it’s basically an admission by the Chinese that they're happy to pollute the environment with reckless abandon,” he said.
Goncalves highlighted Cliffs’ standing as a U.S. company and its willingness to stand up to China, saying major U.S. companies and universities ignore China’s pollution.
Sales volume decreased this quarter by 11% compared to the same quarter last year — to around 5.75 million long tons.
In response to an investor’s question regarding steel prices and if the company could potentially weather a downturn, Goncalves said he’s comfortable with the company’s current debt.
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The company had a slight increase in long-term debt from the end of last year. It increased from $2.09 billion to $2.11 billion.
“Things need to be really bad for us to be concerned with that,” he said.
Cliffs owns Northshore Mining and United Taconite in Minnesota, as well as Tilden and Empire mines in Michigan. It’s also constructing a hot-briquetted iron plant in Toledo, Ohio.
