Cliffs steadfast in commitment to Middletown decarb project

The grant could provide Cliffs with up to $500 million to partially fund its plans to replace the No.3 blast furnace at Middletown with a direct-reduced iron (DRI) plant and two electric melting furnaces (EMFs).

Cliffs said it and the DOE are engaged in “active negotiations” over the project’s terms and conditions.

On Monday, Chairman, President, and CEO Lourenco Goncalves said the company continues moving forward with “award negotiations and project execution on the transformational Middletown project.”

Cliffs plans to fund its portion of $1.3 billion in total outlays for the Middletown project “using liquidity on hand and it’s own free cash flow generation.”

The Cleveland-based steelmaker anticipates the project will reduce Middletown’s production costs by ~$150 per short ton of liquid steel, generating annual cost savings of $450 million.

“These savings do not consider any of the premiums expected to be generated from sales of low-carbon steel, such as Cliffs H2 and Cliffs HMAX,” the company noted.

Last year, Cliffs introduced a “Cliffs H” surcharge of $40/short ton. The prime steel product is produced using high percentages of scrap in the BOFs and hot-briquetted iron (HBI) in the blast furnace burdens.

Additionally, Cliffs plans to implement a ‘Cliffs H2’ surcharge once it begins using hydrogen as a BF reductant “in the coming years,” a company spokeswoman previously told SMU.

The question of achieving a green steel premium

Cliffs’ reiteration of its commitment to the Middletown project came after Goncalves made comments that Cliffs was considering turning down the $500-million grant.

Goncalves told Politico in an interview published on Friday, Sept. 13, that the company hasn’t been able to persuade customers to pay higher prices for greener steel.

Even with the DOE grant, Cliffs would “still have to pony up $1.1 billion” for the project, the CEO told Politico. “I’m not going to do it if the government and the general public are not really supportive of that.”

He told Politico that one of two things will happen: Customers will change their minds and pay the premium. (But that’s been, “So far, not very successful.”) Or Cliffs will go back to emitting more carbon.

Cliffs declined to comment on this story.

Note on funding

Last week, Cliffs proclaimed the successful amendment of a $4.75-billion asset-based lending facility, which matures in 2028. According to Cliffs, it had no borrowings against it as of Friday’s announcement.

Goncalves also mentioned that the company’s capital request in the ABL amendment “was three times over-subscribed, showing continued strong support from our banking partners.”

The amended ABL financing will partially fund Cliffs’ pending acquisition of Stelco. Earlier this week, the Canadian steelmaker’s shareholders approved the $2.5-billion deal. The transaction is expected to close by the end of Q4.