ArcelorMittal USA enters into new 10-year iron ore supply contract with Cliffs

By Paul Ploumis (ScrapMonster Author)

June 01, 2016 07:58:00 AM

SPOKANE (Scrap Monster): Steel major ArcelorMittal USA LLC has signed a new long-term contract with Cliffs Natural Resources Inc. towards supply of iron ore to its steelmaking facilities. The 10-year deal involves supply of approximately 7-10 million long tons of iron ore to its steel mills in Indiana Harbor East, West and Cleveland. The new contract will cover supplies through 2026 and will replace two earlier supply agreements which are set to expire in December 2016 and January 2017.

New contract

The new contract will retain Cliffs as its sole outside supplier of iron ore pellets to its US operations through the next ten years. Cliffs will continue to be the sole pellet supplier of ArcelorMittal's Indiana Harbor West and Cleveland Works facilities. Further, it will maintain the current level of pellet supply to ArcelorMittal's Indiana Harbor East facility.

According to the new contract, the prices to be paid by ArcelorMittal for the supplied iron ore will vary depending on market indices and general inflation. However, the companies denied disclosing the exact terms of the deal.

Mutually beneficial

Cliffs’ Chairman, President and CEO Lourenco Goncalves stated that the signing of the long-term supply contract confirms the strength of business relationship between the two companies. The agreement is mutually beneficial for both Cliffs and ArcelorMittal USA, he noted. The deal will bring sustainable value to both businesses, he added.

Meantime, ArcelorMittal USA President and Chief Executive Officer John Brett noted that the core of the agreement is the market-based pricing mechanism. This will ensure that raw material costs are aligned with the pricing conditions in steel market. The new agreement allows the company to adjust volumes based on market conditions, Brett added.

Removes uncertainty

The deal comes as a big relief for Cliffs that has been badly hurt due to weak demand from steel makers. It will revive the operations at Minnesota’s Iron Range and Michigan. The company had idled two taconite plants in the region on account of severe drop in demand. Cliffs has announced that it would reopen Northshore Mining in Silver Bay/Babbitt by June 1 and the United Taconite operations in Eveleth/Forbes, Minn., by end-2016. The two plants had laid off nearly 1000 workers combined. The new agreement removes any remaining uncertainty about the company and supports its conviction on the company’s bright future.

Turnaround in the offing

Cliffs officials noted that taconite prices have showed signs of improvement. Further, the newly imposed tariffs by the US administration are expected to curb cheap steel imports from around the world, especially from China. The significant rise in taconite orders signals that the industry is on the verge of a turnaround. According to Cliffs, the actual realized revenues per ton for iron ore in the US is expected to improve significantly in 2017.

Shares surge

Following the announcement of the deal, shares of the Cleveland-based mining company surged higher by 33% to $4.10 in early trading. Also, ArcelorMittal’s American depositary shares increased 3.4% to $4.88.

About ArcelorMittal USA

ArcelorMittal USA is part of ArcelorMittal, the world’s leading steel and mining company. It is one of the leading suppliers of quality steel products in major North American markets including automotive, construction, pipe and tube, appliance, container and machinery. ArcelorMittal employs about 20,000 people at 27 operations across the US.

About Cliffs Natural Resources

Cliffs Natural Resources is a Cleveland, Ohio, business firm that specializes in the mining and beneficiation of iron ore. Cliffs manages and operates five iron ore mines located in Michigan and Minnesota. These mines produce various grades of iron ore pellets, including standard and fluxed, for use in blast furnaces as part of the steelmaking process. As the mines are located near the Great Lakes, the majority of the pellets are transported by rail to loading ports for shipments via vessel to steelmakers in North America. The U.S.-based mines currently have an annual rated capacity of 32.9 million gross tons of iron ore pellet production, representing 56 percent of total U.S. pellet production capacity.