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Better Outlook for Iron in 2014: Should You Buy?

Louie Grint
January 31, 2014

As you know, demand for raw materials used in steel production is mostly driven by rapid industrial growth in China. And, although iron ore prices have dropped in 2014 so far, Credit Suisse is contemplating a scenario in which Chinese steel production reaches 840mt in 2014, with iron ore prices around $120/t. So, the outlook is fairly positive.

Two drivers might push iron ore prices up: pollution controls in China is pushing premiums for pellets, lumps, and higher quality ore; freight rates prices, especially Brazil-China freight, have dropped. In this context, and considering that the world will experience a 4% growth in steel consumption in 2014 following a stronger recovery in the American construction and automobile sectors, it would be interesting to analyze which companies are better positioned to profit from iron ore production. Here are three.

First, we have the largest producer of iron ore pellets in North America, Cliffs Natural Resources (NYSE: CLF). 

Driven by cost reduction measures in SG&A and exploration, as well as higher iron ore pricing, third-quarter results brought higher profits. Sales margin grew to $349 million with iron ore sales volume decreasing 2.5% to 11.7