The lower-priced global iron ore market may affect the so-far captive US market and its key iron ore producer Cliffs Natural Resources on increased competitive overseas supply, US investment bank Cowen said Thursday.

With iron ore output in Australia and Brazil projected to increase further, Cowen sees Cliffs “bullied by global producers” with an erosion in pricing power in the US that was described as a relatively “insulated market.”

“The main issue the company faces is high-cost assets coupled with significant new supply of iron ore coming online from global producers,” said Cowen analysts, led by Anthony Rizzuto.

“Cliffs’ US iron ore segment, the most valuable of the business in our view, has cash costs of ~$65/mt and all-in costs of ~$75/mt,” they said. “With iron ore prices trading in the low $80s [CFR China] and the possibility for prices to trend even lower, Cliffs faces difficult decisions on how to compete.”

US iron ore supply contracts are still mainly based around long-term agreements, but there may be pressure when renegotiating to agree to prices closer to spot benchmarks in China. Pellet premiums in the US may be reduced should Brazilian and Canadian suppliers boost North American market share as DRI takes off.

The sale of its Australian iron ore and US coal assets would help Cliffs pay down the significant $3.4 billion debt, but Cowen questioned the operational viability of the remaining assets in this declining price environment.

Lower cash flow from US iron ore could depress the company’s ongoing prospects given what Cowen said was a lack of a catalysts for iron ore price increases.

Brazil’s Vale and Samarco have indicated they may compete more in supplying pellets via the US Gulf as demand grows.

Cliffs shares are currently rated “market perform” by Cowen.

Source: Platts