Dive Brief:
- Steel manufacturer Cleveland-Cliffs on Thursday said its earnings recovery has started to take shape, driven by a highly favorable mix of higher prices, lower costs and shipping volume increases from the automotive industry.
- The Cleveland-based company reported adjusted EBITDA of $286 million in the second quarter, marking its best quarter in the past two years. It also provided a positive second half outlook, forecasting its results to more than double in the third quarter as Section 232 tariffs and tight supplies continue to push steel prices higher.
- The Toyota and General Motors supplier returned to positive free cash flow as it navigated “maintenance outages and lagged contracts” in the second quarter, Chairman and CEO Lourenco Goncalves said on an earnings call Thursday. It also appointed CFO Celso Goncalves to the company’s board of directors and the role of president, marking the early stage of a father-son transition plan.
Dive Insight:
During the second quarter, steel shipments totaled more than 4 million tons, down 6% from the first quarter. The decline was driven primarily by maintenance outages and improved automotive demand that resulted in longer lead times, Celso Goncalves said on the call. Shipments will increase by 300,000 tons in the third quarter as more capacity comes online and pricing and demand continues to improve, according to the company.
Lourenco Goncalves pointed out that shipments to automotive customers during the quarter were the highest they’ve been in the past two years, with finishing lines returning to healthy levels and coating volumes back at levels not seen since 2023. Meanwhile, the average selling price of steel has increased to $1,124 per ton, up $76 from the first quarter.
“Section 232 has been the single most effective industrial policy implemented in our country in a generation,” he said on the call. “Manufacturing is accelerating. Domestic steel utilization is improving and capital is being allocated to U.S.-based production rather than offshore production.”
Cleveland-Cliffs has also seen improvements in Canada’s market, which could benefit its Stelco division. Canada recently extended its tariff rate quota system through June 2027, but Goncalves said “more needs to be done” to protect its steel industry and prevent other countries from dumping their goods.
Cleveland-Cliffs reported revenue of $5.2 billion in the second quarter, up nearly 6% from a year ago. The vast majority of sales — about 30% per category — came from downstream steel service centers, automotive customers and manufacturers of infrastructure such as ships, railway lines and heavy equipment. The remaining 10% came from other steel producers.
The company also reported a net loss of $134 million during the period. This was an improvement from a $473 million loss last year and a $229 million loss in the first quarter.
Looking ahead, Cleveland-Cliffs expects to report an adjusted EBITDA of $575 million in the third quarter, which would be its highest quarter over the past three years. It also expects average selling prices to climb another $55 per ton, with even higher pricing to come in the fourth quarter amid the typical holiday slowdown, Celso Goncalves said.
There will also be an opportunity in the coming months to reset a lot of fixed-price contracts to a higher amount, which could result in a $500 million EBITDA improvement year over year, he said.
Additionally, Cleveland-Cliffs is looking to reline its Middletown blast furnace in Southwest Ohio by 2030. Lourenco Goncalves on the call teased an announcement related to this in the coming weeks.
Pointing to its backlog and pricing projections, the CEO said the second half of the year will look “substantially better” than the first half.
He also recognized Celso Goncalves’ promotion on Thursday, saying he has been an indispensable partner since joining the company in 2014. His son has served as CFO and executive vice president over the past five years.
“I’m not going anywhere anytime soon, and I plan to lead this company for several more years with Celso as my right hand,” Lourenco Goncalves said.
