Cleveland-Cliffs Earnings Call: Challenges and Optimism

Cleveland-Cliffs ((CLF)) has held its Q1 earnings call. Read on for the main highlights of the call.

Cleveland-Cliffs’ recent earnings call painted a picture of a challenging quarter marked by significant losses and operational restructuring. Despite these hurdles, the company expressed optimism for future improvements, driven by the reshoring of automotive production and enhanced operational efficiencies.

Automotive Industry Reshoring

Cleveland-Cliffs is poised to benefit significantly from the reshoring of automotive production to the United States. The company anticipates an annual EBITDA boost ranging from $250 million to $500 million starting in the latter half of 2025, with full impact expected by 2026. This strategic move underscores the company’s commitment to strengthening its domestic market presence.

Operational Efficiency Improvements

In a bid to enhance operational efficiency, Cleveland-Cliffs is idling several loss-making operations, which is projected to generate over $300 million in annual savings. This includes the idling of mines in Minnesota and facilities in Dearborn, Steelton, Conshohocken, and Riverdale, reflecting a strategic shift towards more profitable operations.

Stelco Integration

The acquisition of Stelco has aligned well with Cleveland-Cliffs’ commercial strategy, opening up new business opportunities in both the U.S. and Canada. This integration is expected to bolster the company’s market position and drive future growth.

Unacceptable Q1 Results

Cleveland-Cliffs reported an adjusted EBITDA loss of $174 million for the first quarter of 2025, primarily due to the underperformance of non-core assets and low steel prices. This highlights the challenges faced by the company in the current economic climate.

Onerous Slab Supply Contract

The slab supply contract with ArcelorMittal has resulted in significant negative margins due to a price correlation disruption. This contract, which has been a financial burden, is set to expire in December 2025, potentially alleviating some of the company’s financial pressures.

Impact of Section 232 Tariffs

The implementation of Section 232 tariffs has impacted Cleveland-Cliffs’ operations, particularly in terms of imports and the supply agreement with ArcelorMittal. These tariffs have added complexity to the company’s operational landscape.

Project Uncertainties

There is uncertainty surrounding the future of DOE-supported strategic projects at Middletown and Butler due to changes in administration priorities. Significant modifications are expected, which could affect the company’s strategic direction.

Forward-Looking Guidance

Cleveland-Cliffs’ guidance for the future focuses on several strategic initiatives aimed at improving financial performance. Despite a challenging Q1, the company plans to optimize its operational footprint, expecting $300 million in annual savings from idling non-core assets. Additionally, reshoring automotive production is expected to contribute significantly to annual EBITDA. The company also plans to reduce capital expenditures and resolve a disadvantageous slab supply contract by 2026, aiming for a financial rebound by the second half of 2025.

In conclusion, Cleveland-Cliffs’ earnings call highlighted a quarter of challenges but also outlined a clear path to recovery and growth. The company’s strategic initiatives, combined with improving market conditions, are expected to drive a financial turnaround by 2026, offering a positive outlook for investors and stakeholders.