Why The Bifurcation Of Iron Ore Markets Is Bullish For Cleveland-Cliffs

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About: Cleveland-Cliffs Inc. (CLF)
by: James Duade
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James Duade
Long only, value, special situations, contrarian
Summary

Cleveland-Cliffs has dropped approximately 10% in the past 5 trading days.

Cliffs drop appears to be related to analysts downgrades for iron ore pricing, and downgrades for an iron ore major Rio Tinto.

This article aims to explain why Rio (who is predominantly a low to mid grade iron ore producer) is different than Cliffs (who is a high grade pellet producer).

Structural changes in iron ore markets are leading to a bifurcation between high quality iron ore, and low to mid quality ores driven in part by the Paris Climate Agreement.

The horrific Vale dam collapse this past January, which has disrupted the supply of high quality ores and pellets, has further exacerbated this bifurcation.

Introduction

Recently a friend of mine asked me about the long term prospects of Cleveland-Cliffs (CLF) which has dropped nearly 10% in the past week (i.e., 3/4/19 - 3/8/19). Below is an article