Mining companies have been under pressure this year. Whatever you dig, be it gold, silver, iron ore or coal – your stock would fall. Iron ore and metallurgical coal have been the softest spots so far. Cliffs Natural Resources Inc (NYSE:CLF) has had the luck to mine both iron ore and metallurgical coal, which is why it’s no surprise that the stock is down 50% year-to-date. Does it have a chance of rising?
One single thing that would boost the stock
Cliffs Natural Resources Inc (NYSE:CLF) gets its revenue from selling iron ore and met coal. If the prices for iron ore and met coal remain depressed, there is no chance that the revenue would improve. The company can battle its costs to a certain extent, but for a real change in fortune it needs improvement on the price side.
Why are the prices down? Iron ore and met coal are used for the production of steel. They are dependent on the state of the steel industry. The steel industry is not in the best shape because the demand is timid given the weak economy. The main driver for steel industry is China. The region is severely under urbanized. Many parts of the country are still mostly rural. A lot of people come to cities for a search of better life. They need houses to live, and this fact is driving construction. However, as China’s economy shows signs of slowing, businesses are more cautious about new projects. Currently, more steel is produced than is needed.
Would other companies curb production?
Steel producers like United States Steel Corporation (NYSE:X) or Nucor Corporation (NYSE:NUE) are not likely to curb production. United States Steel Corporation (NYSE:X) is struggling its way to profitability. Just two months ago, the company was expected to become profitable and report earnings of $0.34 per share in the next earnings season. The situation in the steel market did not improve, so the estimates were cut and now the company is expected to report a loss of $0.74 per share.
Nucor Corporation (NYSE:NUE) is expected to remain profitable, but its earnings estimates for the next quarter were slashed by 30% in just two months. In addition to its problems, United States Steel has quite a lot of debt, with a 1.1 debt-to-equity ratio.
Other iron-ore producers have not had a bright year either. BHP Billiton Limited (ADR) (NYSE:BHP) is down 14% year-to-date, while Rio Tinto plc (ADR) (NYSE:RIO) has lost 23% year-to-date. The advantage of these companies over Cliffs Natural Resources Inc (NYSE:CLF) is that they are more diversified.