Steel Products Prices North America

Cliffs' HBI Project on Track in Wake of Strong 2017

January 25, 2018

Cleveland Cliffs reported another great quarter with net income of $318 million and sales of $601 million, compared to prior-year income of $81 million and sales of $754 million. For the full year, revenue totaled $2.3 billion with net income of $371 million. Adjusted EBITDA has increased for the past two years, 28 percent in 2016 and 37 percent in 2017.

“2017 was also the year in which the industry finally woke up to the importance of both rational supply behavior and environmental compliance,” said Chairman and CEO Lourenco Goncalves. “This new, more logical approach to business should provide us solid support to deliver even stronger results in 2018.”

Fourth-quarter iron pellet sales decreased 22 percent year over year to 5.4 million long tons. The decrease was a result of stronger shipments in the first nine months of the year.

Cliffs’ new HBI project in Toledo, Ohio, is on schedule. All $700 million in financing has been secured for construction. Cliffs will move forward on the project without a partner. The HBI team is in place and the permit processing is going well with support from the EPA, city of Toledo and the state of Ohio. Groundbreaking will be in April with construction to start shortly after. The company anticipates the plant will be operational in mid-2020, making Cliffs the sole provider of hot briquetted iron in the Great Lakes region.

The upgrade at the North Shore DRI plant will be able to produce 3.5 million tons annually of low silica DR-grade pellets. The upgrades will allow the plant to switch between BF and DRI pellets without interruption.

Goncalves said the ongoing projects will allow Cliffs to offer high-quality blast furnace pellets, DRI and HBI to customers.

Cliffs anticipates USIO revenue in the range of $97 to $102 per long ton for 2018, and full-year sales and production volume of approximately 20 million long tons. Sales volume in 2017 was 18.7 million long tons and 18.8 million tons of production.

The Asia Pacific Iron Ore division will be closed down late in 2018 due to falling profitability. Cliffs will keep the operation open as long as possible to mitigate any ongoing costs following the shutdown.

The purchase of the contiguous land in the Nashwauk area near Mesabi Metallics is part of Cliffs’ strategy to purse new iron ore for feedstock in the future. Goncalves noted that the site was bought legally and Cliffs will soon be mining the land. He remains confident there are still opportunities for the company in Minnesota.

When asked during the earnings call about cost inflationary pressures, Goncalves cited higher transportation costs, especially for rail freight, saying “railroads have a license to steal.” He said there are not a lot of other options for moving ore and companies using rail are forced into higher costs.

Goncalves commented on the Section 232 submission by Commerce to the president, noting that whatever action is taken, enforcement of any restrictions is crucial. “Amazingly cheap steel does not exist because other countries are amazingly more efficient than us,” said Goncalves. “It’s because other players cheat.”

“If you buy this cheap steel you are an enabler, and Section 232 should be coming for you,” he added.