Steel Mills
Cliffs Terminates Pellet Contract with Essar Steel Algoma
Written by Sandy Williams
October 8, 2015
Cliffs Natural Resources has terminated its iron ore supply agreement with Essar Steel Algoma alleging Essar made multiple and material breaches under the agreement.
“While the agreement has been terminated, Cliffs remains open to discussing supplying Essar with pellets on commercially reasonable terms consistent with a just-in-time iron ore supply arrangement,” said Cliffs in a statement on Tuesday.
In response, Essar Steel Algoma has filed a request for a Temporary Restraining Order. The supply matter is currently in dispute and before a federal judge in Cleveland, Ohio. In the meantime, Essar says it expects Cliffs to honor the supply agreement.
Key Banc analyst Phil Gibbs says the move by Cliffs may be a positive for U.S. iron ore prices. If Essar Steel is forced to purchase ore at spot prices that could help boost prices. Higher prices would put Cliffs in a better leverage position to negotiate new contracts with ArcelorMittal in late 2016/early 2017.
Citigroup analysts Brian Yu and Daniel Knauff agree that the move could benefit pricing. However, they noted, “Alternatively, there is risk that Essar turns to US Steel, who has excess capacity at their Minnesota operations due to reduced utilization at their steel mills. Our understanding is that Cliffs offers a freight advantage vs US Steel, but Essar could choose to diversify their supplier base to mitigate a potential cost increase.”
Cliffs is the sole pellet supplier to Essar Steel Algoma, shipping around 3 million tons annually to the mill. The timing of the announcement puts pressure on Essar to find a solution in order to build inventory before the Great Lakes freeze and halt shipping.
The $1.9 million Essar Steel Minnesota taconite plant is currently under construction and scheduled for completion in mid-2016. Once that plant is operational, Essar Steel Algoma will receive its iron ore pellets from the Nashwauk facility. The plant will have an annual production capacity of 7 million tons of iron pellets and will also supply ArcelorMittal.
Essar Steel Algoma is currently struggling with a sustained drop in steel prices and demand in North America. As a result, the company is adjusting production and will lay off 100 employees until market conditions improve.
Sandy Williams
Read more from Sandy WilliamsLatest in Steel Mills
U.S. Steel sues Algoma over iron pellet shipments
U.S. Steel is suing Algoma over the Canadian flat-rolled producer's rejection of iron pellet shipments, arguing it has breached its contract.
August US mill shipments slip but still higher than last year
The American Iron and Steel Institute reported a decline in the monthly shipments of US mills from July to August.
TransPod, Algoma, Supreme Steel linkup anchors Canadian steel in high-speed transit build
The three Canadian companies have announced a strategic partnership to support the development of an ultra-high-speed transit line from Edmonton to Calgary.
Metallus, USW agree to tentative four-year labor deal
Metallus and the United Steelworkers (USW) have agreed to a tentative four-year labor contract.
ArcelorMittal Dofasco resumes cokemaking after emergency maintenance
The Canadian steelmaker reported on Sept. 30 that “urgent maintenance” was needed in its coke plant off-gas systems. The work required coke oven gas from the No. 2 coke plant to be flared for most of that week.