Steel Mills

AK Steel Acquisition to Transform Cleveland-Cliffs

February 20, 2020

“Transformational” is what Cleveland-Cliffs CEO Lourenco Goncalves called the acquisition of AK Steel in remarks during the Q4 2019 earnings call Thursday. “With the acquisition of AK Steel, Cleveland-Cliffs becomes the most relevant supplier of steel to the automotive industry in the United States, fully integrated from iron ore in the ground to auto parts as a Tier 1 supplier of finished parts used in the assembly line of the car manufacturers,” he said.

Cliffs and AK Steel will also be ideally poised to participate in the electric vehicle market, he said. “With AK Steel’s unique technical expertise, we are the best positioned company to supply what’s needed for this change of the fleet from traditional combustion engines to EVs.”

Regulatory approval of the Cliffs-AK merger has been received from the U.S. and Canada and approval from Mexico is expected by Feb. 27. The transaction is expected to close on March 13.

Cliffs’ Toledo HBI plant will start production in June 2020 with sales focused on mills in the Great Lakes market as well as Mississippi and Arkansas. Customers include Nucor, David J. Joseph, Steel Dynamics, Omni Source, Big River Steel, North Star Bluescope and others. Cliffs does not plan on using HBI at AK Steel initially.

The Toledo plant will have a dedicated supply of DRI pellets from Northshore Mining in Minnesota. The HBI produced will be low silica and 3.0 percent carbon and will start replacing imported Russian and Ukraine pig iron within a few months. About 85 percent of the pellets are order-book secured through 2026 with options for selling the remaining 15 percent. Cliffs anticipates producing 1.9 million metric tons of HBI in 2021.

The new plant created 150 new full-time, high paying jobs in Toledo and will economically benefit both Ohio and Minnesota, said Goncalves.

The AK Steel Ashland plant may have to wait longer before its EAF is restarted. Goncalves said there is no current need to make Ashland a producer of pig iron.

Cleveland-Cliffs’ revenue dropped 17.5 percent year-over-year in the fourth quarter to $534 million. Sales volume in mining and pelletizing was 5.84 million long tons, a 10 percent drop from Q4 2018.

AK Steel Reports Loss

In a separate press release, AK Steel reported a net loss of $53.9 million for the fourth quarter of 2019 compared to net income of $33.5 million in Q4 2018. Net sales declined to $1.4 billion from $1.7 billion in 2018.

Shipments in the fourth quarter slid to 1.44 million tons from 1.67 million tons a year ago. Average price per ton fell 7.4 percent from Q4 2018 to $1,445.

AKship

Earnings loss was attributed to lower spot market selling prices, decreased shipments due to the GM strike and higher input costs.

“We operated well in the face of very challenging market conditions during the fourth quarter,” said CEO Roger K. Newport. “We successfully completed a major planned maintenance outage at our Dearborn Works in October and made significant investments in the blast furnace and steelmaking operations, which will generate substantial recurring cost savings. Also, during the fourth quarter, we entered into a merger agreement with Cleveland-Cliffs Inc.