MESSAGE FROM THE CEO
The majority of Cliffs’ business is a proxy for the U.S. manufacturing economy, which is more resilient and grows consistently. With the U.S. in good economical shape and steel production being healthy, Cliffs’ performance should be good as well. Even more important, the ups and downs of the commoditized price of seaborne iron ore have a very limited impact on us. In fact, there is no other major iron ore producer in the world whose business model is tied less to seaborne iron ore, than Cliffs.
The U.S. is expected to grow in 2015 at its fastest pace in a decade and has regained its position as a global economic leader. This is in stark contrast to the economic outlook for other countries. China is continuing to slow down, Japan has slid into a recession, and Europe is still grappling with the effects of the financial crisis while battling the prospect for deflation. Real U.S. Gross Domestic Product is expected to grow between 2.6% to 3% in 2015. On the job front, there are sustained hiring levels and falling unemployment rates. The drop in oil pricing has favorably contributed to GDP. Americans are enjoying reduced prices at the gas pumps and have more discretionary income. U.S. manufacturing is also benefiting from the lower energy costs.
At the same time, the U.S. dollar is strong and has surged to an 11-year high. While this may increase the potential risk for cheaper imports, the right trade laws and regulations are in place, and we will continue to keep an eye on this. Additionally, U.S. inflation is staying at a low 1.3% annual rate as of November 2014. Presently, there are no signs indicating an immediate risk for deflation.
The U.S. is projected to produce roughly 95 million net tons of steel this year. Downstream markets such as the automotive industry are anticipated to have its best performance since 2006, with auto production expected to climb to pre-recession levels in 2015. Residential housing starts are estimated at 1.2 million units, and non-residential construction has finally rebound. With increased consumer spending, appliances are expected to be on the rise too.
These positive indicators are very good for our steel producing customers and Cliffs’ business. I will discuss our Q4 reported earnings and business outlook next month on our investor conference call which is being held on Tuesday, Feb. 3, 2015.
Chairman, President & Chief Executive Officer
Cliffs Natural Resources Inc.