Prices of iron ore have fallen below $100 per ton this week. China accounts for almost half of the world demand and its economy has been slowing somewhat. I have been wondering what this might mean for the refractory graphite business and ultimately for ZEN. Maybe something maybe not much. Refractory use of graphite in steel mills accounts for a quarter or more of the global demand and likely includes both high purity synthetic for electrodes as well as natural graphite of various types for furnace linings etc.

Another factor is the owership stake that Cliffs has in ZEN. Cliffs is bleeding money, losing more than $80 million and experiencing falling revenue by nearly 20% in the quarter ended March 31st, 2014 vs 2013. Couple that with a hedge fund crying for Cliffs to restructure and you have a fair amount of uncertainty in what Cliffs is doing in future.

So the positive case: Cliffs troubles mean little even if they were to sell their stake, which it seems that they would be unlikely to do, since thier ZEN holding could well be a bright spot given the falling prices for coal and iron ore. The lower iron ore prices may in fact stimulate steel production in the medium and longer term and thus may be good for the price of graphite used in refractories. Net result is neutral to positive for ZEN.

Negative case: Cliffs must sell their ZEN shares to free up the $18 million or so that they now hold in the company. This could make it easier for a hostle bid and or a competitor to take over ZEN especially at these low share prices.

Price of iron ore reflects both high production and lower demand esp. from China and this may mean less refractory graphite demand and thus lower prices for graphite. Net result is negative for ZEN.

Just some thoughts on the price of tea (or ore) in China, which may have some or no impact on ZEN. Certainly does hightlight the importance of new uses for grpahite especially in the LiIon battery market.

cheers and GLTA

Ron