seaborne iron ore prices surged 90%, impacting AK Steel severely, as the company did not account for higher iron ore prices for its second-quarter order book. The impact of iron ore price hikes has been much less for vertically integrated companies such as U.S. Steel ( X), ArcelorMittal ( MT) and Mechel ( MTL). Among major iron ore producers, Cliff Natural Resources ( CLF) will likely experience higher declines. The stock has declined 38.3% from the peaks attained on April 14. Earnings of mining giants such as Vale ( VALE), BHP Billiton ( BHP), and Rio Tinto ( RTP), responsible for nearly two-thirds of the global iron ore supply, will decrease in the upcoming quarters. Vale will record a higher drop in earnings as iron ore accounts for nearly 60% of the company's revenue. That compares with 20.5% for BHP, and 28.0% for Rio Tinto. The cost of 62% iron ore delivered in Tianjin is currently at $117.9 a metric ton, down 36.8% from the peak of April 21. During the third quarter, prices will average around $115 a metric ton, according to Goldman Sachs JBWere. The slump in iron ore prices is the result of a cutback in steel production. Steel production in China reached a four-month low on weakening demand from builders and the auto industry. During June, steel output dropped to 53.8 million tons from 56.1 million tons in May, down 4.1%. Steel production will decline further in the upcoming months, leading to a further drop in iron ore prices this year. China's iron ore imports dropped for a third straight month to 47.2 million tons in June. Based on the weak demand outlook for steel during the second half, analysts reckon that overall iron ore imports will decline further this year, the first time since 1998, from the record of 628 million tons last year. Meanwhile, global steel producers are taking initiatives to increase their vertical integration and reduce excessive reliance on mining giants. ArcelorMittal, currently 45% self-sufficient in iron ore, hopes to reach 75% self-sufficiency by 2015. POSCO ( PKX), the third largest steel producer, behind ArcelorMittal and Baosteel, is seeking opportunities in Brazil. Last week, the company announced plans to invest $162 million to buy a 24.5% stake in an iron ore project in Western Australia. The Australian government's decision to cut resource taxes likely will encourage further investments in the iron ore sector.