Cleveland-Cliffs Sets All-Time Quarterly Records in Q2

Goncalves claims his company has a clear raw material cost advantage resulting from its decision four years ago to invest $1 billion in a direct reduction plant in Toledo, Ohio, which is now producing hot-briquetted iron (HBI) at an annualized rate of 2.1 million tons, above its nominal capacity. By the end of this year, Cliffs will consume internally all the HBI it can produce and will no longer make any available to the market, he told analysts and investors during the company’s second-quarter conference call today. “Our internal use of HBI has minimized our reliance on prime scrap in our BOFs and EAFs, as well as enhanced productivity and reduced emissions in our blast furnaces as demonstrated by our actual CO2 emissions figures,” he said.

Cleveland-Cliffs has built a slab inventory ahead of its planned outage of the No. 7 furnace at Indiana Harbor Sept. 1-Oct. 15. Some of the repairs and upgrades to the BOF will extend the facility’s ability to use HBI and natural gas and move the company forward toward its goal of a 25% reduction in greenhouse gas emissions by 2030. “Cliffs sees decarbonization as part of our license to continue to exist. We are well on our way to achieving our targets through natural gas usage, HBI usage and carbon capture,” Goncalves said.

Cleveland-Cliffs is a major supplier of high-quality steels to the automotive sector, which has experienced severe production delays due to the global shortage of microchips. The company claims it has actually benefited from the slowdown in automakers’ orders by diverting those tons to the spot market where prices and margins are higher.

Cliffs has sold a significant piece of its volume below market levels and is looking to improve on its contracts next year, Goncalves said. “We know our value in managing complex just-in-time environments. We have unique technical abilities that cannot be matched by others on the same massive scale. It is time we are rewarded in our return on capital invested to serve these clients,” he said.

Goncalves anticipates Cliffs’ third-quarter results will be even better than the second as the company negotiates the next round of contracts from a position of strength. “Steel demand remains excellent and, as we continue to negotiate our contract businesses with several clients in different sectors, it is progressively translating into substantially higher contract prices later this year and into 2022. Ultimately, we are set for a monumental debt reduction during the back half of this year, and the achievement of zero net debt in 2022,” he said.

Cliffs’ second-quarter steel product volume totaled 4.2 million net tons, including 33% hot-rolled, 30% coated, 17% cold-rolled, 6% plate, 4% stainless and electrical, and 10% other, including slabs and rail. Steelmaking revenues of $4.9 billion included $2.0 billion or 40% of sales to the distributors and converters market; $1.3 billion or 27% of sales to the infrastructure and manufacturing market; $1.1 billion or 23% of sales to the automotive market; and $532 million or 10% of sales to steel producers.

For the first six months of 2021, the company recorded revenues of $9.1 billion and net income of $852 million. That compares to revenues of $1.5 billion and a net loss of $157 million in the same period last year.

Given the ready availability of vaccines, COVID should not be a holdup to business anymore. It’s a matter of convincing everyone to get inoculated, Goncalves said. Toward that end, Cliffs has set up an incentive program through which employees get a $1,500 bonus when 75% of the workforce at a given location has gotten their shots. The bonus doubles to $3,000 each upon 85% compliance. The program sparked an immediate upturn in the vaccination rate at the company. “Protection from the virus is just as important as any other safety mandate at our facilities, and we are willing to spend money to achieve it,” Goncalves said.

By Tim Triplett, Tim@SteelMarketUpdate.com