Cliffs sees close of Stelco buy, bottom to steel tags, and Mexico out of USMCA

“By the time our acquisition (of Stelco) closes later this year, I expect the market will be a lot more rational and a lot more favorable to Cliffs, boosted by the addition of Stelco to our footprint,” Lourenco Goncalves, Cliffs’ chairman, president, and CEO, said in an earnings call on Tuesday.

He offered the example of August 2020, when steel prices sharply rebounded. As long as there is demand, things often look “ugliest right before a sharp snap back,” he said.

“It’s clear to me that we just need one small catalyst, whether that be a rate cut, certainty around the presidential election, trade enforcement, or something unforeseen right now, and that will ignite the rebound,” Goncalves added.

Likewise, EVP and CFO Celso Goncalves said on the call “we’re in the bottom of a cycle and things could change very quickly here this quarter.” He added that “we feel like we’re overdue for a sharp bounce back.”

Mexico

Lourenco Goncalves said that one pending issue that needs resolution is Mexico. He contended that Mexico continued to be a major problem in the North American marketplace, taking advantage of NAFTA, and its successor—the USMCA.

“We commend the US government for their recent imposition of tariffs on steel transshipped through Mexico, which is particularly serious issue for flat-rolled steel,” Goncalves remarked. “It’s great to see action being taken, but we need a lot more.”

Then Goncalves offered a prediction. “We fully expect that by the next reassessment of the trade agreement in 2026, regardless of the president being Kamala Harris or Donald J. Trump, Mexico will be forced out of the USMCA by the United States and Canada.”

In the USMCA, the “two real partners” are the US and Canada, Goncalves said.

“I have already started talking to Canada about Mexico. So July 1, 2026, is coming, and it will be a bad day for Mexico,” he said. “We are going to take Mexico out of the USMCA and this acquisition (of Stelco) plays on that.”

Stelco updates

Goncalves said that since the ~$2.5-billion deal was announced last week, “We have engaged in discussions with all key stakeholders, including local union leadership.”

“We have also been able in constant conversations with political leadership at the province and federal level to advance a quick resolution and a quick closing,” he added.

Goncalves said that Stelco’s Chairman and CEO Alan Kestenbaum and team “have made significant and relevant investments to set Stelco up for future success.”

“The blast furnace reline just a couple of years ago and the coke plant upgrades-including a brand new 115 megawatt core generation power plant fueled by captured and reutilized blast furnace gas-have made Lake Erie Works (in Nanticoke, Ontario) a very efficient steel plant, operating at a benchmark level in CO2 emissions,” commented Goncalves.

He noted that “smart investors know that efficient blast furnaces are not going away.”

“The technology is superior now, and we will gain an even greater advantage in flat-rolled steel production as more and more EAFs are built and fight over a shrinking pile of prime scrap,” Goncalves said.

He emphasized that Stelco is extremely profitable “and it will be even more profitable under our control.”

“We are going to let them run… .They will run their own thing. We’re going to have controls over commercial and finance, and that’s pretty much it,” Goncalves said.

Talking about the synergies related to the buy, he said, “We’re going to supply from there because Canada to Canada is simpler than the United States to Canada.”

Future M&A, comment on U.S. Steel deal

Regarding the potential for future M&A, Goncalves said, “Just for the record, I don’t believe that the acquisition of Stelco gives me any more problem to acquire anything else.”

Finally, on the progress of Japan’s Nippon Steel’s attempted buy of U.S. Steel, Goncalves pointed to the recent hiring of Mike Pompeo, former Secretary of State under President Donald Trump, by Nippon.

Media reports have said Pompeo was hired in an adviser role by Nippon as it tries to navigate several hurdles that remain before the more-than $14-billion deal, announced in December, is cleared.

“Good luck hiring Mike Pompeo. Mike Pompeo is damaged goods,” Goncalves said. “Mike Pompeo is not the (prospective) Vice President for Donald Trump, it’s JD Vance. So let’s pay attention to the big picture, guys.”