The North American iron ore division produces iron ore pellets for use in blast furnaces as part of the steelmaking process, and currently has a rated annual production capacity of 27 million tons of iron ore.
Almost all its sale of iron ore in China is currently through its Asia Pacific Iron Ore Division, which has a limited supply capacity of 9 million metric tonnes of iron ore.
Below we highlight upside and downside scenarios for our Cliffs price estimate based on the outlook for drivers affecting the earnings for the North American iron ore division.
The Asia Pacific iron ore division provides four direct shipping export products to Asia via the global seaborne trade market, and has a rated annual production capacity of 9 million tons of iron ore.
As the iron ore pellets produced by the division are used exclusively by steel manufacturers, the demand for steel directly impacts the demand for iron ore and hence the price commanded.
The expansion plans at both the Koolyanobbing and Cockatoo Island mines which make up this division would increase the production capacity of this division to 11 million tons of iron ore by 2015.
Investors should expect depressed results, mostly impacted by lower iron ore prices and a lack of contribution from its base metal division, which should remain in the red.