As the economic crisis continues to squash demand for steel, Cliffs Natural Resources (CLF-N) is idling some of its metallurgical coal production in West Virginia and Alabama.
The Cleveland, Ohio-based company says its wholly owned subsidiary in West Virginia, Pinnacle Mining, has shut down its Green Ridge No. 1 mine indefinitely, and closed its Pinnacle mine for two months. The decision will affect a total of about 290 employees.
The Pinnacle and Green Ridge mines are both in Pineville, W. Va., and together produced about 2.4 million tons of metallurgical coal last year.
In Alabama, Cliffs subsidiary Oak Grove Resources is cutting output at its Oak Grove mine and Concord prep plant, which will result in the layoff of about 65 employees. The Oak Grove mine in Adger, Ala., extracts coal from the Blue Creek seam, one of the premier coking coals in the world.
The production curtailments will put the 2009 operating rate at about 2.2 million tons.
The cuts are in line with the downturn in steel production. According to Scotiabank’s (BNS-T, BNS-N) Toronto-based economist Patricia Mohr, crude steel production in February 2009 was 22% below production levels in February 2008 across 66 countries, with the exceptions of China and Iran posting year-on-year gains. Crude steel output in Japan for instance, the world’s largest metallurgical coal importer, fell 44.2% year on year.
In fiscal 2009, which starts in April, Mohr forecasts a price of about US$126-127 per tonne for Western Canada’s premium hard coking coal such as Elk Valley’s Elkview Standard brand. She based her estimate on recently completed annual contract negotiations with Japanese Steel Mills, in which BHP Billiton Mitsubishi Alliance and Nippon Steel reportedly settled the price of Peak Downs and Saraji premium hard coking coals at about US$128-129 per tonne — about 57% below the US$300 of fiscal 2008.
Despite the economic downturn, Cliffs posted strong results for 2008. Full-year revenues reached US$3.61 billion, an increase of US$1.33 billion, or 59%, from 2007.Netincome for the year totalled
US$515.8 million, or US$4.76 per diluted share, compared with US$270 million, or US$2.57 per diluted share on a split-adjusted basis, in 2007.
At presstime in New York, Cliffs Natural Resources was trading at US$25.29 per share.
The company has a 52-week trading range of US$11.80-121.95 and 113.8 million shares outstanding.
Cliffs is the largest producer of iron ore pellets in North America, a significant supplier of direct-shipping lump and fines iron ore out of Australia, and a metallurgical coal producer.
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