Q4 2021 Cleveland-Cliffs Inc Earnings Call

Good morning, Ladies and gentlemen, my name is Sherry and I were conference facilitator today.

Speaker 1: Good morning ladies and gentlemen. My name is Sherry and I am a conference facilitator.

Speaker 1: I would like to welcome everyone to Cleveland's full year and fourth quarter 2021 earnings crunch.

I would like to welcome everyone to Cleveland cliffs full year and fourth quarter 2021 earnings conference call.

Speaker 1: All lines have been placed on mute to prevent any background.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker 1: After the speaker's remarks, there will be a question and answer session.

Speaker 1: company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking

The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward looking within the safe Harbor protections of the private Securities Litigation Reform Act of 1995, although the company believes its forward looking statements are based on reasonable assumptions such.

Speaker 1: within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.

Speaker 1: Although the company believes its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause results to differ materially are set forth on forms 10-K and 10-Q of the NUTS releases filed with the SEC, which are available on the company's Web site.

Rents are subject to risks and uncertainties that could cause actual results to differ materially important factors that could cause results to differ materially.

Set forth.

On forms 10-K, and 10-Q of the news releases filed with the FCC, which are available on the company's website.

Today's conference call is also available and being broadcast at Cleveland cliffs Dot com at the conclusion of today's call. It will be archived on the website and available for replay. The company will also discuss certain results excluding certain special items reconciliation for regulation.

Speaker 1: Today's conference call is also available and being broadcast at ClevelandCliffs.com.

Speaker 1: At the conclusion of today's call, it will be archived on the website and available for replay. The company will also discuss certain results, excluding certain special _____.

Speaker 1: reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Celso Gonzalez, Executive Vice President and Chief Financial Officer.

<unk> G purposes can be found in the earnings release, which was published this morning at this time I would like to introduce Celso Gonzalez Executive Vice President and Chief Financial Officer.

Speaker 2: Thank you, Sherry, and thanks to everyone for joining us this morning.

Thank you Sherry and thanks to everyone for joining us this morning.

Speaker 2: Let me start by highlighting some of our full year financial accomplishments in 2021.

Let me start by highlighting some of our full year financial accomplishments in 2021 hour.

Speaker 2: Our revenues of $20.4 billion, net income of $3 billion, adjusted EBITDA of $5.3 billion, and free cash flow of $2.1 billion were all-time annual records in our company's history.

Our revenues of 24 billion net income of 3 billion adjusted EBITDA of $5 3 billion and free cash flow of $2 1 billion were all time annual records in our company's history.

Speaker 2: The M&A consolidation that we executed in 2020 was a huge driver of the industry market conditions that led to the outstanding annual results that we achieved in 2021.

The M&A consolidation that we executed in 2020 was a huge driver of the industry market conditions that led to the outstanding annual results that we achieved in 2021.

With this record annual profitability, we put the cash we generate it's a good use we reinvested in our business acquired the leading prime scrap processor in North America de Levered, our balance sheet and reduced our diluted share count by 10% last year.

Speaker 2: With this record annual profitability, we put the cash we generated to Goodyear.

Speaker 2: We reinvested in our business, acquired the leading prime scrap processor in North America, de-levered our balance sheet, and reduced our diluted share count by 10% last year.

Speaker 2: Looking ahead, with another year of considerable and predictable free cash flow in front of us, we have further accretive uses of capital already underway in 2022, including the $1 billion share repurchase authorization that we announced this morning.

Looking ahead with another year of considerable and predictable free cash flow in front of US. We have further accretive uses of capital already underway in 2022, including the $1 billion share repurchase authorization that we announced this morning.

Speaker 2: Just to give you an idea of how 2022 is going so far.

Just to give you an idea of how 2022 is going so far.

Speaker 2: On a year-over-year basis, we have already generated more adjusted EBITDA in January of 2022 alone than we did in the entire first quarter of 2021.

On a year over year basis, we have already generated more adjusted EBITDA in January of 2022 alone than we did in the entire first quarter of 2021.

Speaker 2: Now, focusing back on our Q4 2021 results, last quarter we generated adjusted EBITDA of $1.5 billion on 3.4 million tons of steel shipments.

Now focusing back on our Q4 2021 results last quarter, we generated adjusted EBITDA of $1 5 billion on three 4 million tons of steel shipments the second best quarterly performance in our company's history.

Speaker 2: second-best quarterly performance in our company's history, only behind the previous quarter's $1.9 billion adjusted EBITDA on 4.2 million tons shipped.

Behind the previous quarter's $1 9 billion adjusted EBITDA of $4 2 million tons shipped.

Speaker 2: The main driver of this quarter over quarter decline in EBITDA from Q3 to Q4 was the shipment reduction.

The main driver of this quarter over quarter decline in EBITDA from Q3 to Q4 was this shipment reduction.

Speaker 2: As we all know, automotive production remained light in Q4 of 2021 relative to normalized levels, particularly during the period between Thanksgiving and the end of the year, when the COVID Omicron variant began to spread around the world.

As we all know automotive production remained light in Q4 of 2021 relative to normalized levels, particularly during the period between Thanksgiving and the end of the year when the Covid Omicron variant began to spread around the world.

Speaker 2: Additionally, service centers and distributors pulled even less tons than usual during this already typically week period in late November and December .

Additionally, service centers and distributors pulled even less tonnes than usual during this already typically weak period in late November and December .

Speaker 2: Remaining steadfast in our disciplined supply strategy and based on this rebound we expected And are already seeing from our automotive clients this year We elected to move up several operational maintenance outages originally planned for 2022 into the fourth quarter of 2021

Remaining steadfast in our disciplined supply strategy and based on this rebound we expected and are already seeing from our automotive clients. This year, we elected to move up several operational maintenance outages. Originally planned for 2022 into the fourth quarter of 2021.

Speaker 2: These actions reduced our sequential quarter over quarter steel production by 675,000 crude tons in Q4, ultimately also impacting our unit costs.

These actions reduced our sequential quarter over quarter steel production by 675000 crude tons in Q4, ultimately also impacting our unit costs.

Speaker 2: Partially offsetting the volume and cost impacts were higher selling prices in Q4, which rose by approximately $90 per ton from $1334 to our highest level of the year of $1,423 per net ton. This is also only an early indication of the success we have achieved in renewing our fixed price sales contracts, as only a portion of our contract renewals were already in place during Q4 of 2021.

Partially offsetting the volume and cost impacts were higher selling prices in Q4, which rose by approximately $90 per ton from $13 34 to our highest level of the year of 14 to $23 per net ton.

This is also only an early indication of the success, we have achieved in renewing our fixed price sales contracts as only a portion of our contract renewals were already in place during Q4 of 2021.

Speaker 2: Remember, the majority of our renewals were not in place until January 1st of 2022.

Remember the majority of our renewals were not in place until January one of 2022.

Speaker 2: As this year progresses, the selling prices we report every quarter going forward will continue to demonstrate the successful renewal of these fixed price contracts, and that will be even more evident if the index HRC price continues to drop.

As this year progresses, the selling prices. We report every quarter going forward. We will continue to demonstrate the successful renewal of these fixed price contracts and that will be even more evident if the index HRC price continues to drop.

Speaker 2: For context, if we applied the contracts we have in place now in 2022 to the fourth quarter of 2021, holding all else constant, our Q4 2021 adjusted EBITDA would have been nearly $500 million higher.

For context, if we applied the contracts we have in place now in 2022 to the fourth quarter of 2021, holding all else constant our Q4 2021, adjusted EBITDA would have been nearly $500 million higher.

Speaker 2: This level of fixed contracts is the key differentiator in favor of Cleveland Cliffs relative to all other steelmakers in the United States, and gives us significant visibility into our cash flows for 2022.

This level of fixed contracts is the key differentiator in favor of Cleveland cliffs relative to all other steelmakers in the United States and gives us significant visibility into our cash flows for 2022.

Speaker 2: Despite the lower shipments and additional inventory build, we generated $900 million of free cash flow in Q4 of 2021.

Despite the lower shipments and additional inventory build we generated $900 million of free cash flow in Q4 of 2021.

Speaker 2: Of this $900 million, we used $761 million to acquire FPT and used the remaining $150 million or so to pay down debt.

Of this $900 million, we used $761 million to acquire SPT and use the remaining $150 million or so to pay down debt.

Speaker 2: So in other words, with only one quarter's worth of free cash flow, we were able to pay for a meaningful acquisition and still had enough cash flow left over in the quarter to pay down some debt.

So in other words with only one quarter's worth of free cash flow, we were able to pay for a meaningful acquisition and still have enough cash flow left over in the quarter to pay down some debt.

Speaker 2: Now, speaking of our debt, we have already accomplished a lot more than we originally expected in terms of improving our leverage.

Now speaking of our debt we have already accomplished a lot more than we originally expected in terms of improving our leverage.

Speaker 2: We keep a close eye on our overall debt levels on a dollar basis, but we also look at our overall leverage on a total debt to last 12 months adjusted EBITDA basis.

We keep a close eye on our overall debt levels on a dollar basis, but we also look at our overall leverage on a total debt to last 12 months adjusted EBITDA basis.

Speaker 2: With total debt and LTM adjusted EBITDA at essentially the same level, at the end of 2021, we are at a total leverage of only one time.

With total debt and LTM adjusted EBITDA at essentially the same level at the end of 2021, we had a total leverage of only one time.

Speaker 2: By next quarter, our LTM adjusted EBITDA will likely be even higher, which will continue to further reduce our overall leverage metric.

By next quarter, our LTM adjusted EBITDA will likely be even higher which will continue to further reduce our overall leverage metrics.

Speaker 2: As a reminder, our leverage was over four times in 2019, pre-COVID and before our transformation.

As a reminder, our leverages over four times in 2019, pre COVID-19 and before our transformation.

Speaker 2: While overall leverage is in great shape, we will continue to simplify our capital structure by paying down debt, replacing existing bonds with cheaper ones, and extending debt maturity.

While overall leverage is in great shape, we will continue to simplify our capital structure by paying down debt, replacing existing bonds with cheaper ones and extending debt maturities.

Speaker 2: The significant free cash flow we anticipate in 2022 should allow us to pursue the dual goals of repurchasing shares and reducing debt.

The significant free cash flow, we anticipate in 2022 should allow us to pursue the dual goals of repurchasing shares and reducing debt.

Speaker 2: We have already redeemed our convertible notes in 2022, and several other tranches of our bonds become callable this year at pre-negotiated prices, including the two tranches of secured notes we issued in 2020.

We have already redeemed our convertible notes in 2022 and several other tranches of our bonds become callable this year at pre negotiated prices, including the two tranches of secured notes we issued in 2020.

Speaker 2: We fully intend to redeem or refinance these notes at some point in 2020.

We fully intend to redeem or refinance these notes at some point in 2022.

Speaker 2: As expected, last year we built a substantial amount of working capital, which should be worked down throughout this year.

As expected last year, we built a substantial amount of working capital, which should be worked down throughout this year.

Speaker 2: Given this increased collateral base, we were able to take advantage of these asset levels and upsize our ABL facility last quarter, increasing our available liquidity by $1 billion to our current level of $2.6 billion.

Given this increased collateral base, we were able to take advantage of these asset levels and Upsized, our ABL facility last quarter, increasing our available liquidity by $1 billion to our current level of $2 6 billion.

Speaker 2: On another very important note on the balance sheet, our net pension and OPEB liabilities saw a $1 billion reduction during Q4, primarily due to actuarial gains and strong asset performance leading to a $1.3 billion or nearly 30% net reduction during 2020.

On another very important note on the balance sheet, our net pension and <unk> liabilities side, a $1 billion reduction during Q4, primarily due to actuarial gains and strong asset performance, leading to a $1 3 billion or nearly 30% net reduction during 2021.

Speaker 2: Also importantly, in the rising rate environment that we are in today, we have meaningful potential for further pension and OPEB liability reduction.

Also importantly in.

In the rising rate environment that we're in today, we have meaningful potential for further pension and <unk> liability reductions.

Speaker 2: Just for reference going forward, for every 50 basis point increase in our discount rate, our expected liabilities would decline by about $500 million, all things considered.

For reference going forward for every 50 basis point increase in our discount rate our expected liabilities would decline by about $500 million all things equal.

Speaker 2: Looking ahead, even under today's pessimistic HRC futures curve, we would expect higher overall average selling prices in 2022 than we saw in 2021 when HRC averaged $1,600 per ton.

Looking ahead, even under today's pessimistic HRC futures curve, we would expect higher overall average selling prices in 2022 than we saw in 2021, when HRC averaged $600 per ton.

On the cost side, we expect to see increases related to energy and materials with the largest annual change in coal and coke.

Speaker 2: On the cost side, we expect to see increases related to energy and materials with the largest annual change in coal and coke.

Speaker 2: Countering this, we have been offsetting our coke usage by increasing the usage of HBI in our blast furnaces and increasing the percentage of scrap in the charge of our BOFs.

Countering this we have been offsetting our coke usage by increasing the usage of HB INR blast furnaces and increasing the percentage of scrap in the charter of our Pos.

Speaker 2: Our CapEx budget for this year is $800 to $900 million, an increase from the previous year primarily due to an additional reliability and environmental project.

Our capex budget for this year is $800 million to $900 million.

An increase from the previous year, primarily due to an additional reliability and environmental projects.

Speaker 2: inflation, and the reline of one of our Cleveland glass furnaces, which will be out for over 100 days during Q1 and Q2.

Inflation and the realign of one of our Cleveland blast furnaces, which will be out for over 100 days during Q1 and Q2.

Full year DD&A should be about $900 million.

Speaker 2: Exclusive of one-time items, our 2022 SG&A expense should be around $520 million, which includes higher wages and also $40 million of FPT overhead.

Exclusive exclusive of one time items, our 2022 SG&A expense should be around $520 million, which includes higher wages and also $40 million of SPT overhead now.

Speaker 2: Now that we have effectively exhausted our tax NOLs, our cash tax rate should be in the 15 to 20 percent range with our book tax rate at 21 percent. With that, I will turn it over to our CEO , Lorenzo Gonsalves.

Now that we have effectively exhausted our tax Nols, our cash tax rate should be in the 15% to 20% range with our booked tax rate at 21%.

With that I will turn it over to our CEO retrofits all this.

Thank you and good morning, everyone.

Speaker 3: Our first full calendar year as the new Cleveland Cliffs was an absolute success.

Our first full calendar year as the new Cleveland cliffs was an absolute success.

Speaker 3: And we could not have accomplished all the great results we were able to accomplish without the hard work and commitment of our 26,000 employees. Approximately 20,000 represented by the USW, the UAW, the machinists and other unions.

And we could not have accomplished all of the great results, we were able to accomplish without their hard work and commitment of our 26000 employees.

Approximately 20000 represented by the USW.

UAW machinists and other unions.

Speaker 3: We believe in manufacturing in the United States.

We believe in manufacturing and United States.

Speaker 3: and in good paying middle class jobs.

And in good pay middle class jobs.

Speaker 3: We really appreciate the work of each one of our employees and the unions representing them.

We really appreciate the work of each one of our employees and the unions representing them.

Speaker 3: We could not have done all that without

We could not have done all that without you.

Speaker 3: as great as 2021 was for Cleveland Cliffs.

As great as 2021 was for Cleveland cliffs.

Speaker 3: we would have done even better if the automotive industry had resolved their supply chain problem.

We could have done even better.

Alto motive industry had resolved their supply chain.

Speaker 3: The shortage of microchips cut their opportunity to build 18 million cars or more in 2021. And the automotive sector ended the year with a much smaller 13 million unit.

The shortage of microchips cut their opportunity to build 18 million cars or more in 2021 and.

And the automotive sector ended the year with a much smaller 13 million units.

Speaker 3: When we at Cleveland Cliffs realized in the third quarter of 2021 that our automotive clients were still not performing up to the level that they were guiding us to build inventories for them, we then made the decision to move up to Q4 some important maintenance jobs originally scheduled for the first four months of 2021.

When we had Cleveland cliffs realized in the third quarter of 2021.

Our alto motive clients were still not performing up to the level that they were guiding us to build inventory for them with them made the decision to move up.

Q4, some important maintenance drops or regionally scheduled for the first four months of 2022.

Speaker 3: That decision, albeit correct, has clearly impacted our Q4 results.

That decision, albeit correct.

Clearly impacted our Q4 results.

Speaker 3: Now, with the first month of 2022 behind us.

Now.

With the first months of 2000 and finished June behind us.

Speaker 3: we are starting to see improved delivers to our automotive clients.

We are starting to see improved delivers.

Our automotive clients.

Speaker 3: While it is just a one-month data point, deliveries to automotive clients in January were stronger than each of the previous three months, October , November , and December .

Wireless is just a one last thought the point.

Deliveries of automotive clients in January were stronger than each of the previous three months October November and December .

Speaker 3: And our adjusted bid by January was a solid $588 million.

And our adjusted EBITDA in January was a solid $588 million.

Yes.

Furthermore.

Speaker 3: As the microchip shortage improves during 2022, the automotive companies will need a lot more steel this year than in 2021.

And the micro chip shortage in pumps during 2020 through the automotive companies wound need a lot more to steal this year than in 2021.

Speaker 3: This steel comes primarily from Cleveland Cliffs.

This is steel comes primarily from Cleveland cliffs.

We are by a huge margin.

Speaker 3: the largest supplier of steel to the automotive industry in the United States.

The largest supplier of steel to the automotive industry and United States.

Speaker 3: Let's make this abundantly clear to our investors.

Let's make this abundantly clear to our investors.

Speaker 3: There is no other steel company, integrated or mini mill, in the U.S. or more broadly in North America capable of supplying all the specs and all the tonnage.

There is no other steel company integrated or many of you in.

In the U S or more broadly in North America capable of supplying all of these specs and all of this tonnage.

Speaker 3: we supply the American automotive industry.

We supply the America automotive industry.

Speaker 3: Cleveland Cliffs already has all the equipment and technology, technological capabilities that other companies are only now spending several billions of dollars to try to replicate by building new melt shops and new galvanizing lines.

Cleveland cliffs already has all of the equipment and technology.

Illogical capabilities that other companies are only now is spending several billions of dollars to try to replicate.

By building, new melt shops, and new government nicely lines.

Speaker 3: We typically sell five million tons of steel directly to automotive manufacturers and also sell another two to three million tons through intermediaries.

We typically sell 5 million tons of steel directly to automotive manufacturers and also sell another two to 3 million dos through intermediaries.

Speaker 3: Put another way, almost half of our steel sales ends up in automotive functions.

Another way almost half of our steel sales adds up and up.

Automotive functions.

Another interesting fact.

Speaker 3: Even though we have not deliberately tried to grow our automotive market share in 2021, we have actually increased our market share.

Even though we have not deliberately drive to grow our automotive market share in 2021.

We have actually increased our market share.

Speaker 3: through tolls resourced by our clients.

Through towards resource it by our clients.

Speaker 3: While the clients do not tell us why they are taking the order away from another steel company and reassigning the specific item to Cleveland Cliffs, we can only assume that these other steel companies are not meeting the automotive industry's high standards.

While the clients do not tell us why they are taking the order away draw another steel company and reassigning. These specific items to Cleveland cliffs, we can only assume that this other steel companies are not meeting the automotive industry's high standards.

Speaker 3: That's probably why these competitors have to invest several billions of dollars to play catch-up.

That's probably why this competitors have to invest several billions of dollars to play catch up.

Speaker 3: Cleveland Cliffs does not have to spend this type of money, and will not.

Cleveland cliffs does not have to spend this type of money and we will not.

Speaker 3: With our capex needs in 2022 relatively low and strong confidence in our cash flows

We had our capex needs in 2022 relatively low and strong confidence in our cash flows.

Speaker 3: We are very comfortable putting in place the $1 billion share buyback program just announced.

We are very comfortable putting in place the $1 billion share buyback program just announced.

Speaker 3: Another differentiating feature of our way of doing business is the predictable pricing model that we have in place with automotive and team plates and some select clients in other sectors as well.

Another differentiating future.

Our way of doing business is predictable pricing model.

We have in place with automotive and tin plate and some select clients in other sectors as well.

Speaker 3: This feature eliminates the worst cancer in our industry, which is self-inflicted volatility.

This feature eliminates the award cancer in our industry, which is self inflicted volatility.

Speaker 3: Going forward, we will work with more clients to move sales under this model. Real clients.

Going forward, we will work with more clients to move sales under this model.

Real clients don't need indexes.

Speaker 3: They need reliable suppliers and fair prices.

They need reliable suppliers and fair prices.

Speaker 3: We currently sell about 45% of our volumes under annual fixed price contracts. By far the highest in our industry. And we want this number to continue to grow.

We currently sell about 45% of our volumes.

Under annual fixed price contracts by far the highest in our industry and we want this number to continue to grow.

Speaker 3: The harm caused by the volatility of steel pricing is most damaging for smaller service centers who live out of their inventory value.

The harm caused by the volatility of steel pricing is most damaging for a smaller service centers, who will leave out of their inventory values.

Speaker 3: Ironically, these same folks are the ones who create volatility in the first place.

Chronically.

These same folks.

Those who create volatility in the first place.

Speaker 3: panic buying, double and triple ordering when supply is tight, and then housing.

Panic buying double and triple ordering when supply is tight and then housing book.

Speaker 3: Purchases altogether when inventories are temporarily adequate, perpetuating a never-ending cyclicality.

Purchases all together when inventories are temporarily adequate.

Perpetuating a never ending cyclicality.

Speaker 3: We are convinced that it is in everyone's best interest to limit volatility in our industry.

We are convinced that it is in everyone's best interest to limit volatility in our industry.

Speaker 3: And that's not only desirable, but also feasible.

And thats not only desirable but also feasible.

Speaker 3: That's why we are moving away from sales to smaller players, further concentrating on the larger clients, which already make up the vast majority of our sales.

That's why we are moving away from sales to smaller players further concentrating on the larger clients, which already make up the vast majority of our sales.

Speaker 3: At this point, all important clients of Cleveland Clips are being offered index-free deals to continue to do business with us.

At this point all important clients, so Cleveland cliffs.

<unk> offered index free deals to continue to do business with us.

Speaker 3: Marrying stable costs with stable prices up and down the supply chain can create a much healthier business environment for steel in the United States.

Mary is stable costs with stable prices up and down the supply chain.

Increased a much healthier business environment for steel in the United States.

Speaker 3: Another ongoing important matter for the future of Cleveland players is our commitment to ESG.

Another ongoing important matter.

The future of Cleveland cliffs.

Our commitment to ESG.

Speaker 3: That was evident with our purchase of FDT, the national leader in prime scrap, which was completed in the fourth quarter.

That was evident with our purchase of <unk>.

The national leader in Prime scrap.

Was completed in the fourth quarter.

Speaker 3: The integration of FPT has gone remarkably well. And we're grateful for the buy-in of the 600 employees of FPT that are now employees of Cleveland.

The integration of SPT has gone remarkably well Andrew are grateful for that by end of the 600 employees of FTP.

Now employees of Cleveland cliffs.

Speaker 3: Since closing the deal on November 18, we have made substantial moves securing a number of additional sources of prime scrap updates.

Since closing the deal on November 18, we have.

<unk> made substantial moves security a number of additional sources of prime scrap update most.

Speaker 3: Most notably, the largest automotive stumping plant in the country.

Most notably the largest outdoor modem is dumping plant in the country.

Speaker 3: This particular stamping plant alone generates more than 150,000 tons of prime scrap per year.

This, particularly particular, Stephanie plant alone generates more than 150000 tons of prime scrap per year.

Speaker 3: Our agreement replaced an incumbent scrap company who had been servicing this stamping plant for decades, even before this scrap company was acquired by a mini-mill several years ago.

Our agreement replaced an incumbent scrap companies who has been servicing this.

Is that the implant for decades, even before this scrap company was acquired by a mini mill several years ago.

Speaker 3: Our deal was made possible with a compelling proposition. This automotive manufacturer buys the steel primarily from Cleveland Cliffs, and now we can feed their scrap directly back to our steelmaking shop.

Our deal was made possible with a compelling proposition.

These automotive manufacturer buys this deal Bryan narrowly from Cleveland cliffs, and now we can feed their scrap directly back to our steelmaking shops.

Speaker 3: This is not just recycling steel, it's a real closed loop.

This is not just recycling steel.

It's a real closed loop.

Speaker 3: A closed loop is a key piece of our automotive client's environmental strategy.

A closed loop is a key piece of our automotive clients environmental strategy.

Speaker 3: as well as a key piece of power on environmental strategy at Cleveland Cliffs.

As well as a key piece of our own environmental strategy at Cleveland cliffs.

Speaker 3: On the carbon emission side, we continue to lower our usage of coal.

On the capital ambition side, we continue to lower our usage of coal.

Speaker 3: and coke by increasing the utilization of HBI as a significant part of the burden in our blast furnace.

And coke.

By increasing the utilization of <unk>.

It is a significant part of the burden in our blast furnaces.

Speaker 3: While our flagship direct reduction plant in Toledo was originally built to supply third parties' EAFs with HPI.

While our flagship direct reduction plant in Toledo was originally built to supply third parties Eas with HP.

Speaker 3: This HBI is now being exclusively used in-house within Cleveland Cliffs.

This API is now being exclusively use the <unk> House, we then Cleveland cliffs.

Speaker 3: The vast majority in our blast furnace.

Vast majority in our blast furnaces.

Speaker 3: play a central role in lowering both our growth rate and our CO2 emissions.

Our central role in lowering both our corporate and our Seo.

Missions.

Furthermore.

Speaker 3: We are currently working with Linde, our largest supplier of industrial gases.

We are currently working with lean days, our largest supplier of industrial gases to implement the utilization of hydrogen and Toledo.

Speaker 3: to implement the utilization of hydrogen in Toledo.

Speaker 3: As you may know, our state-of-the-art direct reduction plant was originally designed and built with the possibility of using up to 70% of hydrogen in the mix as reductant gas.

As you May know our state of the art direct reduction plan was originally designed and built with the possibility of using up to 70% of hydrogen in the mix as reduction gas.

Speaker 3: we expect to report on the usage of hydrogen and the production of the first hydrogen-reduced HPI is still in 2022.

We expect to report on the usage of hydrogen in the production of the first hydrogen reduced hei is due in 2022.

Speaker 3: The same goes for our iron ore pellets.

The same goes for our iron ore pellets.

Speaker 3: Another key competitive advantage we have is a driver of lower emissions relatively to foreign competition that uses primarily sinter feed ore in their blast furnace.

And as a key competitive advantage that we have.

And the driver of lower emissions relatively to foreign competition that use primarily sinter feed or in their blast furnaces.

Speaker 3: Going forward, we will be limiting the tonnage of iron ore pellets we sell to third parties.

Going forward, we will be limiting the tonnage of iron ore pellets, we sell to third parties.

Iron ore is a finite resource.

Speaker 3: and the time and cost it takes to get ferments and extend life of mine is incredibly cumbersome.

And the time and cost it takes to get permits and extend life of mine is incredibly cumbersome.

Speaker 3: In addition, ROR pellets are scope one emissions for Cleveland Cliffs, but they are scope three emissions for the clients who sell them.

In addition, iron ore pellets are scope, one emissions for Cleveland cliffs.

Our scope three emissions for the clients to sell them through.

Speaker 3: Unfortunately, Scope 3 emissions are not accounted for, not counted in anyone's reduction targets. And, surprisingly, at least for now, no one really seems to care about Scope 3 emissions. Therefore, producing fewer tons of pellets automatically reduces our Scope 1 emissions.

Unfortunately, the scope three emissions are not accounted for.

Not counting the annualized reduction targets.

And surprisingly at least for now no one really seems to care about scope three emissions.

Therefore, producing fewer tons of pellets automatically reduce our scope one emissions.

Speaker 3: And that's good enough for us, at least until scope 3 becomes a topic of concern. Also, with the use of additional scrap in our BOFs, our iron ore needs are not as high as before. And we no longer need to run our mines full out.

And thats good enough for us at least on to scope three becomes a topic of concern.

Also when they use up additional scrap now.

Yes.

Our iron ore needs are not as high as before and.

And we no longer need to run our mines fault.

Speaker 3: When determined where to adjust production, our first look is at our cost structure.

When determining where to adjust production our first look at our cost structure.

Speaker 3: because we are now able to produce the great palace at Menorca and mainly due to the ridiculous royal structure we have in place with the Mesabi Trust.

Because we are now able to produce Dr grade pellets at Minorca, a mainly due to the ridiculous royalty structure, we have in place with the Mrs. Savi Trust.

Speaker 3: We will be idling all production at our North Shore mine, starting in the spring, carrying through at least to the fall period.

He will be idling of production at our Northshore mine is.

Starting this spring carrying through at least two default periods.

And maybe beyond.

Speaker 3: At North Shore, no production, no shipments, no royalty payment.

At Northshore low production no shipments lower royalty payments.

Speaker 3: We also acknowledge that our strategy to stretch hot metal by adding increased amounts of scrap to the DOFs is working extremely well.

We also acknowledge that our strategy to stretch hot metal by adding increased amounts of scrap to the Oems.

He is working extremely well.

Speaker 3: With more scrap in the BOFs, we need fewer tons of hot metal to produce the same tonnage of liquid steel.

With more scrap in the Bureau apps, we need fewer tons of hot metal to produce the same tonnage of liquid steel.

Speaker 3: As a consequence, the North Shore Isle could go longer than currently planned.

As a consequence the norm.

Sure Ivo could go longer than currently planned.

Speaker 3: As another consequence of our strategy of hot metal stretching, we have dramatically lowered our needs for coke and coke.

As another consequence, so far our strategy.

Stretching.

Have dramatically lower dollar needs for coking coal.

Speaker 3: We already announced last quarter that we idled our cook Barry at Meadowtown.

We already announced last quarter that we idled our batting at Minerva.

Speaker 3: Now that our coke needs have been reduced even more, in the second quarter of 2022 we will also permanently close our Mountain State carbon coke plant.

Now that our coke needs have been reduced even more in the second quarter of 2000 pay true Wow, So permanently close our mountain state carbon Coke plant.

Speaker 3: This action will not only further improve our carbon footprint, but will also save us approximately $400 million in capex originally planned for this facility over the next few years.

This action will not only further improve our carbon footprint, but we also save us approximately $400 million in capex or regionally planet for this facility over the next few years.

Speaker 3: Even though jobs are going to be eliminated at Mountain State Carbon, we have enough job openings at other nearby Cleveland Police Facilities.

Even though jobs are going to be eliminated at mountain state carbon we have enough job openings at other nearby Cleveland cliffs facilities, and we can ensure all good employees, who have either employment opportunities within our company.

Speaker 3: and we can ensure all good employees will have other employment opportunities within our company.

Speaker 3: On that note, the last piece of our environmental strategy relates to how we operate our eight blast furnaces.

On that note the last piece of our environmental strategy relates to how we operate our <unk> blast furnaces.

Speaker 3: Our heavy presence in highly specified automotive-grade materials, particularly exposed parts, necessitates the use of blast funds.

Or have presence in highly specified automotive grade material, Mark tiers, particularly exposed parts necessitates the use of blast furnaces.

Speaker 3: EAFs continue to be unable to demonstrate that they can compete and produce the entire spectrum of specs demanded by the car manufacturers. Numbers don't matter.

Eas continue to be unable to demonstrate that they can compete and produce the entire spectrum of specs demanded by the car manufacturers.

Numbers don't lie.

Speaker 3: That's the main reason why all the major steel suppliers located in countries with a strong presence of automotive manufacturing, like in Japan, in South Korea, in Europe , and here in the United States, are not mini-mills operating in the area.

That's the main reason why all of the major steel suppliers located located in countries with a strong presence of automotive manufacturing like in Japan, and South Korea in Europe and here in the United States.

Not many mills operate eas.

Speaker 3: They are all integrated steel mills with blast furnaces and BOFs.

They are all integrated steel mills.

With blast furnaces.

Speaker 3: Cleveland Cliffs is the one here in the United States.

Yes.

Cleveland Cliffs is the one here in the United States.

We do not use a sinker.

Speaker 3: We use only pellets and HBI in our blast furnaces, enabling us to establish the new world benchmark in low coke rates and low emissions.

We use only pellets and HDI.

Last point is this.

Enabling us to establish the new world benchmark in low cap rate and low emissions.

Speaker 3: This is particularly relevant when our automotive clients, with a worldwide presence, compare Cleveland Cliffs against their other well-known automotive steel suppliers from countries like Japan.

This is particularly relevant when our automotive clients with a worldwide presence.

Compare Cleveland cliffs, our guests there other well known automotive is still suppliers from countries like Japan.

Speaker 3: South Korea, Germany, Austria, Belgium, or France, among others.

South Korea, Germany, Austria, Belgium, or France.

Yes.

Speaker 3: Our full control over the entire supply chain, from pellets to HBI to prime scrap, creates a huge differentiation in favor of Cleveland Cliffs, one that is impossible to replicate in Asia or in Europe .

Our full control over the entire supply chain from pellets to <unk>, Brian scrap create.

Creates a huge differentiation in favor of Cleveland cliffs.

And that is impossible to replicate in Asia or in Europe .

Speaker 3: That said, we also produce a lot of steel that goes to less quality intensive end users.

That said, we also produce a lot of SKU, that's most less quality intensive end users.

Speaker 3: A blast furnace reliant is a capex heavy undertaker.

Last one is relying is a capex heavy undertaking.

Speaker 3: OB is totally expected in our multi-year projection.

Albeit.

Totally expected and our multiyear projections.

Speaker 3: Under this evaluation process, we also take into consideration other upgrades to the upstream hot end, as well as the capital related to extending the life of mine of our iron ore mine.

Under this evaluation process, we also take into consideration other upgrades to the upstream hub ban as well as the capital related to extending the life of mine of our iron ore mines.

Speaker 3: With all that, in some cases, the capital requirements of a new EAF compared to the avoidance of reinvesting in a blasphemy line and its associated supply chain could come out close to a wash.

With all that in some cases, the capital requirements of our new Eas compare it to the avoidance of reinvesting.

And our blast furnaces rely and its associated supply chain could come out close to a wash.

Speaker 3: particularly because we at Cleveland Cliffs already have the rolling and coating capabilities in place.

Particularly because we at Cleveland cliffs already have the Rowley and coating capabilities in place.

Speaker 3: If and when that happens, the wash, or better, we might consider an EAF as a replacement to a blast furnace reliant in the future.

And when that happens do wash or whether we might consider.

<unk> as a replacement to our blast furnace to realize in the future.

One final piece on the environmental to note.

Speaker 3: of all CO2 emissions generated in the United States.

<unk> generated in the United States.

Speaker 3: The emissions related to the production of steel represent just 1% of the total. One more time.

Just related to the production of steel.

Represent just 1% of the total.

One more time.

Just 1%.

Speaker 3: This number is 15% in China and 7% worldwide.

This number is 15% in China.

And 7% worldwide.

Speaker 3: But here in the United States, it is just one percent.

While adhering to United States. It is just 1%.

Speaker 3: The steel industry in the United States is the most environmentally friendly in the entire world.

The steel industry in the United States is the most environmentally friendly in the entire world.

Speaker 3: Meanwhile, transportation, particularly affected by automotive tailpipe emissions, is responsible for 29 percent, while energy is responsible for another 25 percent.

Meanwhile, transportation, particularly affected by automotive deal pipe emissions is responsible for 29%.

<unk> energy is responsible for another 25%.

Speaker 3: This is where the importance of steel made in the USA is most significant, as our very small emissions footprint again, just one percent, will play a critical role in improving the emissions of these two sectors, which combined are responsible for more than 50 percent of all CO2 emissions in the United States.

This is where the importance of steel made in USA is most significant is our very small emissions footprint again just 1%.

Play a critical role in improving the ambitions of these two sectors, which combined are responsible for more than 50% of all <unk> emissions in the United States.

Speaker 3: For one, Cleveland-Bliffs has been prepared for the transition from ICE to electric vehicles long before EVs rapid adoption, and we have the right skills necessary to meet the automotive industry target of 50% EV adoption by 2030.

For one global and cliffs has been prepared for the transition from ICD to electric vehicles.

Long before.

These rapid adoption and.

And we have the right skills necessary to meet the automotive industry target of 50% EV adoption by 2030.

Speaker 3: On the energy side, we need more renewables, like solar and wind, and both are still intensive.

On the energy side, we need more renewables like solar and wind.

Oh, sorry steel intensive.

Speaker 3: Cliffs is the only producer in the United States of the electrical steels needed for the modernization of the electrical grid.

Cliffs is the only producer in the United States.

Electrical steels needed for the modernization of the electric grid.

Speaker 3: which received $65 billion in funding under the recently passed infrastructure bill.

We received $65 billion in funding under the recently passed infrastructure appeal.

Speaker 3: Our non-oriented electrical steels, we call it NOS, is used for motors in both hybrids and DEVs.

Our non oriented electrical steels, we call. It knows is used for motors and both hybrids and Evs.

Speaker 3: The infrastructure bill also includes another $7.5 billion in the market for charging stations for electric vehicles.

The infrastructure view also includes another seven $5 billion.

Market for charging stations for electric vehicles.

Speaker 3: Each charger uses approximately 50 pounds of gold, grain-oriented electrical steel, and we are talking about half a million of charging stations, plus the equivalent amount of transformers to tie down these charging stations into the grid.

Each charger use approximately 50 pounds of goes grain oriented electrical steel.

We are talking about half a million of charging stations.

The amount of Transformers to tie down just charging stations into degreed.

Speaker 3: With all that, and no other producer of ghouls or gnolls in North America other than Cleveland Glyphs, in 2022, we have a more than full order book for electrocephalography.

With all that and no other producer of both <unk> and <unk>.

North America other than Cleveland cliffs in 2022, we have more than full order book for <unk>.

Gross deals.

Speaker 3: And that's just the beginning of the EV revolution, which will certainly progress between now and 2030.

And Thats just the beginning of the EV Revolution wind you certainly progress between now and 2030.

Speaker 3: With all we at Cleveland Cliffs are doing related to carbon emissions, I can't believe so many companies are being given a free pass by the investment community, despite not doing much more than just saying they will be carbon neutral by 2050.

With all we at Cleveland cliffs are doing related to cargo ambitions.

<unk> believe so.

Many companies are being giving a free pass by the investment community.

Despite not doing much more than just saying they will be carbon neutral by 2050.

Speaker 3: What I have just laid out here are real, concrete, undeniable measures to reduce emissions.

What I have just laid out here are real concrete undeniable measures to reduce emissions.

Speaker 3: And we're implementing them all, company-wise, at Cleveland Clinic.

You are implementing demo companywide at Cleveland cliffs.

Speaker 3: We will continue to be able to track our progress in 2022, 2023, 2030 and beyond.

We will continue to be able to track our progress in 2020 and walk through 2023 2030 and beyond.

Speaker 3: and we'll watch how much others will actually do here in the United States and abroad.

And we'll watch how much others, who actually do here in the United States and abroad.

Speaker 3: The future, and specifically 2022, is clearly bright for Cleveland Cliffs.

The future and specifically 2022 is clearly breath for Cleveland cliffs.

Speaker 3: Underlying demand remains strong. Infrastructure-related spending has started, particularly regarding electrical.

Underlying demand remained strong in.

Infrastructure related spending has started particularly regarding electrical steels.

Speaker 3: And the cheap shortage affecting the automotive has begun to ease, leading to meaningful pent-up demand for cars and trucks.

And the chip shortage affecting our automotive has begun to ease leading to meaningful pent up demand for cars and trucks.

Speaker 3: That should benefit Cleveland Cliffs a lot more than any other steel company in the United States.

That should benefit Cleveland cliffs, a lot more than any other steel company in the United States.

Speaker 3: In the meantime, we will take full advantage of the market's lack of appreciation or lack of understanding of our business by buying back our stock.

In the meantime, we will take full advantage of the market's lack of appreciation or lack of understanding of our business by buying back our stock.

Speaker 3: all to the benefit of our lawyer shareholders. I will now turn it over to the operator for Q&A. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate you're

All to the benefit of all.

Our lawyer shareholders I will now turn it over to the operator for Q&A.

Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is open.

Please Mr. <unk>, if he would like to remove your question from the queue.

And for participants using speaker equipment may be necessary to pick up your handset before pressing the star.

Our first question is from Lucas pipes with B Riley Securities. Please proceed.

Speaker 4: Hey, good morning, everyone, and congratulations on a really terrific 2021. Thanks, Lucas. Appreciate it.

Hey, good morning, everyone.

Congratulations on a really terrific 2021 Lucas for sure.

Speaker 4: I wanted to ask you a bit about the capital structure going forward. When I go back to Q2 2021 conference call, it

Lorenzo and sell so I wanted to ask you a bit about the capital structure going forward kind of what.

When I go back to second quarter 2021.

Conference call.

Speaker 4: You mentioned a net debt zero sometime next year, so this year I interpreted it as an absolute target on the leverage side and today's prepared remarks sounded more that you're aiming for relative leverage targets versus net debt and the like. How should investors think about that?

You mentioned, a net debt zero sometime next year. So this year it was kind of I interpreted.

Absolute target on the leverage side.

Today's prepared remarks sounded more.

That you're aiming for relative leverage targets.

<unk> versus net debt and the like.

How should investors think about think about this going forward.

Speaker 3: Yeah, Lucas, first of all, net net zero can't be a target for any company because you are inserted in environments that are with things that are way beyond our control, like interspace, like the ability to refy. So, you know.

Yes look first of all net debt zero tends to be our target for any company because you Werent circuit in environment.

Yes.

With things that are beyond our control like interest rates like that.

The ability to refi so.

Speaker 3: net death, the zero or death zero or whatever, the only way to really be 100% sure that you're going to start with no death is when you file for bankruptcy.

Net debt to zero or depth zero or whatever.

One way to really be 100% sure that we're going to start with.

No that is waiting to file for bankruptcy.

Speaker 3: because then it's fresh start accounting. So that's a way to get there. So and you know well that that's not something that here at Cleveland Police we considered back in 2014 and we proved ourselves right. So this being said, in 2032, I spent $1.3 billion to buy out ArcelorMittal.

Because in this fresh start accounting so that's the way to to get there.

You know well.

That's not something that.

And equivalent Newsweek considered back in 2014, and we proved ourselves right. So this being said in 2022 I spend.

One 3 billion to adults.

Buyouts Arcelormittal.

Speaker 3: with the preferred, that I could easily have given them a spot.

With the with the preferred.

I could easily.

Without giving them stock.

Speaker 3: I use the cash, and I also bought FPT for $775 million that ended up being $761 million. So we are talking more than $2 billion in cash usage.

Cash and also buy bought SBC for $775 million that ended up being $761 million. So we are talking more more than $2 billion in cash cash usage.

Speaker 3: that was absolutely necessary for our future. I hope you understood what I said about the use of scrap as we work to reduce emissions. You reduce emissions not building EAFs. You reduce emissions melting scrap.

Was absolutely necessary for our future I hope you understood what I said about the use of scrap as we work to reduce emission you reduce ambitious not build eas, you'll reduce emissions melting scrap instead of melting.

Speaker 3: instead of melting big iron with 4% carbon content. And that's what we're doing in our steel making shops. FET is key for that. We also finished out the construction of our HBI plant.

Big Iron with 4%.

Copper content.

That's what we're doing in our steelmaking shops.

It is key for that.

We also finished the construction of our <unk> plant.

Speaker 3: So we have been using the cash in the business, and we have been paying down debt. Even in Q4, we still paid down debt. So we'll continue to pay down debt.

So we have been using that cash in the business and we have been paying down debt. Even in Q4, we will still pay down debt. So we will continue to pay down debt.

Speaker 3: And the use of cash might have delayed achieving that zero. But we'll get there. But there's no targets for 2021 or 2022. We'll get there when we get there. And a company that has leverage of one dime is a very healthy company.

And the use of cash.

Might have delayed achieving debt net debt zero, but we will get there, but that's the target for 2021 and 2022, we will get there when we get there.

<unk>.

That has leverage off one time is a very healthy company.

Speaker 3: even for the ones that don't believe that we are going to.

EBIT for the ones that don't believe that we are going to generate the revenues and the cash flow that we are going to generate in 2013 through if they believe that our our EBITDA would be lets put a number $2 5 billion 3 billion gearing up with <unk>.

Speaker 3: generate the revenues and the cash flow that we are going to generate in 2022, if they believe that our EBITDA will be, let's put a number, 2.5 billion, 3 billion, then we end up with two times leverage. It's still very healthy. So even the naysayers have to admit that a company leverage two times is good. But guess what, Lucas?

Tax leverage it's a still very healthy, but we've been the naysayers have put the meat that accompanied the 11 two times is good.

Speaker 3: Based on the refinancing, based on the renegotiation of our sales contracts, our cash flow generation should keep us within this one-time leverage or less. So that's what we're working on here at the company with the backdrop of reality. Let's also complement my answer with a few other things. Right.

Yes, what Lucas.

Based on the refinancing and refinancing visual of the renegotiation of our sales contract.

Our cash flow generation should Keith.

Within these one time leverage or less so that's what we're working on.

Here at the company.

With the backdrop of reality.

I'll, let social complement my answer with a few other things.

Speaker 2: Yeah, hey, thanks, Lucas. Yeah, just to put it another way, right? If you look at our EBITDA in 2020, it was like $350 million.

Yes, Hey, Thanks, Lucas, Yes, just to put it in another way right. If you look at our EBITDA in 2020, it was like $350 million.

Speaker 2: And then today we just reported 2021 adjusted EBITDA of $5.3 billion.

And then today, we just reported.

2021, adjusted EBITDA of $5 3 billion right. So when we saw that.

Speaker 2: So when we saw that we were accomplishing a lot of deleveraging just by that significant increase in EBITDA, it allowed us to be aggressive with the redemption of the preferred.

We were accomplishing a lot of deleveraging just buy.

That significant increase in EBITDA. It allows us to be aggressive with the redemption of the preferreds and the acquisition of the <unk>. So that net debt zero target became less relevant.

Speaker 5: and the acquisition of FPT. So that net debt zero target became less relevant. So I think that's a way to look at it.

Speaker 2: And as I mentioned, on a total debt to LTM-EBITDA basis, we're at one times. As I stated, our January EBITDA alone in 2022 is going to be higher than our Q1 of 21. So if you roll forward that LTM-EBITDA.

So I think thats the way to look at it.

As I mentioned.

On a total debt to LTM EBITDA basis, we're at one times.

As I stated our January .

Alone in 2022 is going to be higher than our Q1 of 'twenty. One. So if you roll forward that LTM EBITDA, our leverage metric is only going to get better.

Speaker 2: our leverage metric is only going to get better on that basis.

Speaker 2: But, you know, going forward, we're still going to be proactive in terms of cleaning up the capital structure. As you know, we have those two bonds, two tranches of secured notes. Both of those are callable.

On that basis.

But going forward, we're still going to be proactive in terms of cleaning up the capital structure. As you know we have those two bonds two tranches of secured notes both of those are callable this year.

Speaker 2: We have, there's another tranche that's callable. One of the unsecured is also callable this year. We've already got, you know, redeemed the converts. So there's going to be continual fine-tuning of the capital structure, but we are looking at it more of a, on a leverage metric basis as opposed to a total net debt target.

We have theres another tranche that's callable one of the unsecured is also callable. This year, we've already got redeemed the convert so theres going to be continual.

Tuning of the capital structure, but we are looking at it more of a.

On a leverage metric basis as opposed to us.

Total net debt target.

Speaker 3: Yeah, not to beat the dead horse that you...

Yes.

Peter.

The dead horse here.

Speaker 3: health is over. But just to make sure that we are on the same page, we...

Freeze over.

Just to make sure that we are.

On the same page.

We.

Start with talking after the acquisition about the synergies.

Speaker 3: And there are targets of synergies, and numbers for synergies, and things like that. I haven't received a question about synergies in a long time. Do you know why? Because more than the numbers of the synergies, more than the excuse me.

There are targets of synergies and number for synergies and things like that I haven't received a question about citizens in a long time.

Because more than the numbers of the synergies more than that.

Excuse me.

Speaker 3: 150 or 310 after we acquired ArcelorMittal. Target numbers for synergies, we changed the industry completely, 100%.

150, or 310 after required arcelormittal target numbers, where synergies we changed the industry completely 100%.

Speaker 3: We created the basis for everybody here in the United States to make a lot of money. Even the enemies recognize that.

We created the basis for every body adhering to United States to make a lot of money year to date <unk> recognized that without our hour.

Speaker 3: actions on consolidating this industry.

The actions on consolidated these industry.

Speaker 3: No steel mill, no service center, and several others throughout the entire supply chain would have made money as we all made money in 2021. So for you guys that are listening to this call with these guys' names, you are welcome.

No we still view no service center and several others throughout the entire supply chain would have made money.

As we all make money in 2010, you. So for your guys that are listening the scope with disguise the names <unk>.

Welcome.

Okay.

I got to that.

Speaker 3: So that was the biggest synergy that we implemented, not just for ourselves, but for the entire steel industry.

So that was the biggest synergy.

As we implement and not just for ourselves, but for the entire industry.

So.

Speaker 3: we are going to get to continue to manage this company, that life, better than anybody else in this business. Period, full stop. No more questions about net debt zero, things like that. I'm not bound for this BS.

We are going to get to continue to manage this company that's life better than anybody else in this business period full stop no more questions about net debt zero things like that are not bound for this BS.

We are real.

Speaker 3: We are the ones that deliver the results, that's our shareholders.

We are the ones that deliver the results.

Speaker 3: love it, the bone holders love it, and the shorts hate. We'll continue to do that.

Shareholders.

Love It the bondholders.

And the shorts.

We'll continue to do that.

Well Lucas.

Speaker 4: Thank you very much, Lorenzo, that was clear.

Thank you very much Lorenzo.

That was clear.

Speaker 4: I wanted to ask a bit on the cost side. You maintained a disciplined approach here in Q4, and there was some fixed cost absorption on the back of that. I'd assume that will get better in Q1 and throughout the year 2022, but then there are some inflationary pressures, of course. I wondered if you could put some color around that and how you take these various drivers into account when you think about costs in 2022.

I wanted to ask a bit on the cost side. So you maintain it.

Disciplined approach here in Q4, and there was some fixed cost absorption on the on the back of that so.

Assume that we will get better in Q1 and throughout the year.

2022, but then there are some inflationary pressures of course, so I wonder if you could.

Put some color around around that and how you take these various drivers into account when you think about costs.

Speaker 3: Yeah, sure. Let me give you the idea of the macro, and if Celso wants to complement the details, I'd be more than happy to do it that way. In the macro, the biggest thing was in Q4, the automotive industry clients.

22 versus 2000.

Sure.

Let me give you the idea of the baccarat them yourselves wants to complement them.

More than happy to do that way.

And the macro the biggest thing was in Q4 Delta.

The automotive industry clients.

Speaker 3: started to put more orders in front of us and informing us that they...

Started to put more orders in front of us.

Informing us.

Speaker 3: microchip shortage was being resolved and we are producing based on their input.

Microchip shortage was being resolved.

And we are producing based on their input.

Speaker 3: That thing did not really materialize. We saw that. We were skeptical through the end of Q3. And then we saw that happen at the beginning of Q4. I could have done two things. One.

Dan.

That things did not really materialize, we saw that.

Skeptical.

Through the end of Q3, and then we saw that happen at the beginning of Q4.

We have done two things one.

Speaker 3: started going like the ones, particularly the Canadians, that came to our market as if it was their market because they were yelling fire in the middle of the theater and trying to sell everything for any price.

<unk> started going like there werent, particularly the containers that came to our markets as if it was that their market because they do have.

He always firing the bureau of the theater.

Trying to sell everything for any price.

Speaker 3: in destroying the market as if it was their market price-wise.

Destroyed the market as if it was their market.

Speaker 3: or anticipating maintenance because one day these automotive folks will resolve their microchip shortages. So we anticipated maintenance. We knew that we would be

<unk>.

Okay speaking maintenance because one day. This automotive focus will result, theyre microchip shortages. So we anticipate that the masses, we knew that we would be punished by.

Speaker 3: by moving fewer volumes. This is called cap, this is called production discipline.

Moving fewer evolving this scope capex this quarter production discipline.

Speaker 3: which sprays a lot in theory, but nobody does. We do. And we'll continue to do, because it's the right thing.

With this phrase a lot in theory, but nobody does.

To do the right thing to do and then the cost per tonne goes up yes. It goes up we do produce less it goes up as far as the <unk>.

Speaker 3: And then the cost per ton goes up, yeah, it goes up. If you produce less, it goes up. As far as the items that are really hurting us specifically, one that's clearly going up a lot in an individual base, that's Coke and Coke, it's not affecting us that much. Because if you notice, we are reducing Coke rates a lot.

Items that are really hurting us.

Specifically it was thats clearly.

Going up a lot and then these visual <unk> co.

Coking coal.

Is that affecting us that much because if you noticed we are reducing corporate a lot by using <unk> by the way I think thats only Cleveland cliffs can use because they were the only ones that have it.

Speaker 3: By the way, I think that only Cleveland Cliffs can use, because we're the only ones that have it, to use in Blast.

We use the blast furnaces.

Speaker 3: It's not hurting us as much because we're using, it's higher per ton, but we're using a lot less in terms of tons. So that's a good thing. It's also going to complement with any specific recovery.

No.

It's not hurting us as much because we are using.

Higher per ton, but we are losing I'll look less at the pump. So that's a good thing. It's also going to complement that with a specific recovery no. I mean, I think maybe just to put some numbers to it Lucas.

Speaker 2: No, I mean, I think maybe just to put some numbers to it, Lucas, you know, the colon coke increased.

Speaker 2: Um, it's probably even less than you're expecting. It's high, but it's only about 40% year over year going into 2022.

The coal and Coke increase.

Is probably even less than youre expecting at the time, but it's only about 40%.

Year over year going into 2022, but on an overall.

Speaker 6: But on an overall cost basis, even with that 40% baked into it.

Cost basis, even with that 40% baked into it.

Speaker 2: We're only seeing a total overall average increase of call it 10% on our cost.

We're only seeing in total overall average increase of call it 10% on our costs.

Speaker 2: So I think that's a good way to look at it. And as Lorenzo mentioned, you know, we're decreasing that coke rate, which is helping offset some of this large

So I think that's a good way to look at it.

And as Lorenzo mentioned, we are decreasing our coke rate.

Which is helping offset some of this large increase.

Terrific.

Speaker 4: Great. Well, really appreciate all the color today, gentlemen, and continue best of luck. Thank you. Thanks, Lucas.

Great well.

Really appreciate all the color today, gentlemen, and continued best of luck. Thank you. Thanks Lucas.

Speaker 1: Our next question is from Michael Glick with J.P. Morgan. Please.

Our next question is from Michael Glick with Jpmorgan. Please proceed.

Speaker 7: Hey, good morning. Your contract mix comments were pretty interesting. You talked about moving beyond that 45% level. How high of a level do you want to get to?

Hey, good morning.

Your contract mix comments were pretty interesting you talked about moving beyond that 45% level, how high of a level that you want to get too.

Speaker 3: Look, we believe that real clients should have contracts to lock tonnage and price.

We believe that real clients should have contracts.

Two lakh tonnage.

Speaker 3: We don't believe that we did any indecency.

And price.

We don't believe that we need any indexes.

Speaker 3: indexes are good to protect the job of the purchasing manager, because they go back to their bosses and say, well, I cut a deal with CRU. Okay. So, whatever CRU will go, will dictate the destiny of the cash flows of the companies.

Indexes are good to protect the job of the purchasing manager because they go back to the buses and so well a good <unk> and CRE.

Okay. So what LCR you go dictate.

The destiny of the cash flows of the company.

I don't agree with that.

Speaker 3: You've got to take ownership of what you do. Do you believe in stability or not? You want stability or not? Or you want just to preserve your job and look good in front of your boss? So I don't believe that we should have index at all, completely, but I am realistic.

Take ownership would want you to do believe is stability or not.

Once stability or not or you want just to preserve your job and look good in front of your boss. So I don't believe that we should have the index are all complete but I'm realistic.

Speaker 8: So, I believe that my percentage that's pretty higher than anyone else in the industry is already higher than anyone else in the industry. You know, continue to make it bigger, you know? I want the smaller guys to buy from the big guys.

I believe my percentage, that's pretty higher than anyone else in the industry.

He is already higher than anyone else in the industry.

We continue to make it bigger.

I want the smaller guys to buy from the big guys.

Speaker 3: instead of trying to buy from the muse, because they don't have the wherewithal to.

Set up trying to buy from us because they don't have the.

We recall too.

Speaker 3: endure when things are not 100% the way they told their bosses. So I want to go fix, because indexes are a cancer and need to be eradicated.

Import when things are not 100% of the way they told their bosses so.

I want to go to go fixed because indexes are cancer and needs to be eradicated.

Speaker 7: Understood. You know, just on the buyback, can you walk us through the drivers of that decision, and do you view it as more, you know, kind of opportunistic or systematic in nature, which, you know, I guess is another way of asking, how aggressive will you be with it?

Understood.

Yes, just on the buyback can you walk us through the drivers of that decision.

View, it as more kind of opportunistic or systematic in nature, which I guess is another way of asking how aggressive will you be with it.

Speaker 3: It depends. It depends. My bet is, uh, uh, uh, uh...

It depends it depends.

Buyback is.

Speaker 3: a blessing against stupidity.

Medicine against the stupidity.

You don't buy back stock.

Speaker 3: because you believe that a company should be buying back stock. A company should be returning money to the shareholders, but buying back stock is a tax-efficient way to reward long-term shareholders.

Claus.

You believe that.

Our company should be buying back stock a company should be.

Returning money to the shareholders, but buying back stock.

Tax efficient way to reward long term shareholders.

Speaker 3: Instead of allowing them to be at the mercy of the opportunistic, of the mercy of the ones that don't understand. Mike, we still are called and I own one company every now and then. The other day a guy, I forgot his name, he's like a substitute teacher at CNBC. He comes in when the real guys are not available. Something Sullivan, I forgot his name. Anyway, because he's a substitute.

Third of allowing them to be at the mercy of the.

Opportunistic of the mercy of the ones that both of their staff.

Mike We still are coal and iron ore company every now and then.

I forgot his name is like a sufficient to future at CNBC. He comes in wind.

The real guys are not available.

Sullivan I forgot his name.

Eric because it has to be strategic we again.

Speaker 3: He again called Cleveland Cliffs an IROR company. How many years do they need to learn that we are no longer an IROR company? So people are making investment decisions based on that.

<unk> called Cleveland cliffs on Iron ore company, how many years they need to learn that though we are no longer on IRR company. So.

People are making investment decisions based on that.

Speaker 3: So, buy Vector for that. So if the market decides to give me the gift of free shares, I'll buy it, because I don't have the need for CapEx that other companies are just committing right now, and put $3 billion here, $3 point something billion over there. I don't have any of that.

So buybacks are for that so.

The market decides to give me the gifts of free shares I'm biased because I don't have.

The.

The need for Capex that other companies are just committed right now.

<unk> policy is three point something billion dollars over there I don't have enough debt.

Speaker 3: It's uh, that's it. We are being uh, we're going to be in the

It is.

We are being we're going to be in the this.

Speaker 3: $800, $900 billion for 2022 with CapEx, and then going forward, it will be less than that. So we have the cash flows, and we're going to have the cash eventually used to buy back. But it's not being aggressive. So let's see how stupid the market is. That will dictate how aggressive it will be.

800, $900 billion for 2022 of cutbacks and then.

Going forward it will be.

Less than that so we have the cash flows that we're going to have the cash.

We used to buy back, but it's not being aggressive so let's see how stupid the market is that will dictate our addressable.

Understood I appreciate the candor as always.

Okay.

Speaker 1: Our next question is from Carlos Diaba with Morgan Stanley . Please proceed.

Thanks, Michael.

Our next question is from Carlos de Alba with Morgan Stanley . Please proceed.

Carlos Please check and see if your line is muted.

Speaker 9: Yeah, sorry I was muted. Good morning everyone, particularly Lorenzo and Celso.

Yes, sorry, I was muted and good morning, everyone, particularly good answers.

Speaker 10: Just a question on, just following on the last comment you made. So what about dividends? I mean, the cash flow duration should be good based on your comments and expectation for prices and volumes. So share buybacks are great, obviously, but you probably have a scope to do both. What are your views on dividends? You don't like the tax situation of those? Or what would you prefer or only do share buybacks? And then I have another question on end markets, if I may. Look, the money belongs to the shareholder.

Just a question on <unk>.

Follow on the last comment you made.

So what about dividends.

Absolutely ratio should be good based on your comments on expectation for prices and volumes. So.

Share buybacks are great, obviously, but you probably have scope to do both.

What are your views on dividends.

Right.

Situation of those or what would you prefer.

The only do share buybacks and then I have another question on end markets.

The money belongs to the shareholders.

Speaker 3: And our shareholders are by and large institutional shareholders, and institutional shareholders tend to prefer buybacks than dividends.

<unk>.

Our shareholders are by and large institutional shareholders and institutional shareholders tend to.

Prefer buybacks than dividends is more tax efficient like I said.

Speaker 3: Retail-like dividends better. One day, when everybody understands, who is the supplier of automotive steel in the United States? Oh, it's Cleveland.

<unk> dividends.

One day, when everybody understand who is the supplier of automotive is still with United States.

Speaker 3: Who is supporting all the electric vehicle revolution that's going on? It needs to happen if you are serious about emissions.

Politically.

Yes.

Supporting all the.

Electric vehicle Revolution, that's going on it needs to happen if we're really serious about emissions in United States, That's Cleveland cliffs, because we have all the steel for the card all the electric.

Speaker 3: in the United States. Oh, that's Cleveland Clips, because we have all the steels for the cars, all the electric steels for the engines, and all the electric steels for the transformers and charging stations. So we are right there in the basis, in the foundation of this real change that's happening in the marketplace. So when the retail investors...

New students for the agents and all of the electrical steels for the Transformers and the charging stations. So we are right there.

Basis, and the foundation of this real change that's happening in the marketplace. So when the retail investors really understand that if you are really serious about ESG you should do must by Cleveland cliffs stock.

Speaker 3: really understand that if you are really serious about ESG, you should, you must buy Cleveland Clifton stock, that day I might consider a dividend. But not before. Because dividends are good for retail. Shared buybacks are good for institutional. So far, institutional is the base. Some of them still need to learn that we're no longer an IRA workup. But we'll get there.

That day I might consider.

But not before because dividends are good for retail.

Share buybacks are good for institutional so far institution or is the base. The students some of them still need to learn that are no longer on our workup, but.

We will get there.

Speaker 9: Fair enough. And then on other markets, I mean, you clearly made the discipline decision in the fourth quarter, and that had to do with your expectation that volumes in the auto sector would improve this year. Any comments there? What are you hearing from those customers? And then you're with about 25 to 30 percent, say, of your sales going to infrastructure and manufacturing markets.

Fair enough and then on end markets.

Clearly.

<unk> made a disciplined decision in the fourth quarter.

And that had to do with your expectation that volumes in the auto sector will improve this year any comments there what are you hearing from those customers and then with about 25% to 30% of your sales go into infrastructure.

Speaker 9: Bill, how much would you say you have leveraged to the infrastructure bill? You mentioned the energy sector, obviously, but more broadly...

And in fact, you're in market.

How much would you say you have leverage to the infrastructure Bill.

You mentioned in the energy sector, obviously, but more broadly how much do you see the exposure of fleets to the infrastructure Bill.

Speaker 9: How much do you see the exposure of cleaves to the infrastructure bill? Maybe, you know, it's something that is underappreciated by the general market.

It is something that is on there I appreciate it.

Speaker 3: Let's stay with the portion of the infrastructure bill that I mentioned in my prepared remarks.

By the end of the market.

Yes.

Let me stay with the portion of the infrastructure.

That.

I mentioned in my prepared remarks.

Speaker 3: 72 million dollars, 72.5 billion dollars, billion dollars, sorry, billion dollars, just related to electric, electric vehicles, broken into

$72 million $70 billion to $5 billion.

Billion sorry.

Just related to electric electric vehicles.

Broken into.

Speaker 3: improving the electrical grid, 65, and 7.5 billion charging stations, that's just for us.

Improving.

The.

The electrical grid 65, and $7 5 billion charging station that's just for us.

Speaker 3: Think about it, we are the only ones producing brain-oriented electrical steels that go into transformers. So that's for us. We are the only ones at this point producing non-oriented electrical steels that go into the engines.

Think about where the owner was producing grain oriented electrical steels that goes into transforms so thats for us.

We are the only ones at this point, reducing non oriented electrical steels that go into the agents.

Speaker 3: We are by far the biggest supplier of, by far, by a lot. We are bigger than number two plus number three as a supplier of automotive industry.

Thus for us.

We are by far the biggest supplier of by.

By far by a lot we are bigger the number two number three.

As a supplier of automotive industry.

Speaker 3: So we're really big in automotive. So everything that's going on right now, and there's a lot going on in the automotive industry in terms of changing models and redesigning and re-specifying materials for these new EVs that are coming online in 2024, 2025, depending on the market.

So we are really big.

So everything Thats going on right now and there is a lot going on in the automotive industry in terms of changing models.

Redesigning.

Re specify materials for these new E&ps that are coming online in 2024 to <unk> 55, depending on the.

Speaker 3: the OEM, which we all serve, we are the suppliers of all of them, as number one supplier of all of them, we are so very familiar with those changes, it's always the Cleveland-Clifton Steel. So that's all coming in this infrastructure.

The OEM, which we all serve.

The suppliers all of them.

Number one supply all of them.

We are very familiar with that those changes it's always at Cleveland cliffs steel so that's all coming.

Speaker 3: If you go to other things, like I mentioned in my, also in my prepared remarks, in wind and solar, these are big consumers of plates and galvanized. And we do produce a lot of plates, we do produce a lot of galvanized, so we're going to benefit a lot. But you make no mistake, our place, our, the place where we shine is in automotive.

And this infrastructure.

Two other things like I mentioned.

Also in my prepared remarks.

And in solar these are big consumers of fleet and go overnight and we do produce a lot of we do produce a lot of government ISO refer to benefit a lot, but make no mistake our place our.

Lease where we shine is in automotive.

Speaker 11: And yeah, they have not been performing. They could have reached something like 19.

And.

Yes, they have not be per foot.

Could have reached something like 19.

Speaker 3: 18, maybe 19 million cars last year, but they did not manage well their supply chain.

18, maybe 19.

Mid on cars last year, but they did not managed well in their supply chains. So we are carrying a lot of inventory ready for them, which are absolutely will be transporting cash very soon.

Speaker 3: So we are carrying a lot of inventory ready for them, which absolutely will be transformed in cash very soon. And you don't need to produce, because it's already produced. So it's all right. We're good.

Need to produce poses already produce so it's all right.

Speaker 9: All right. Excellent. Thank you very much. Good luck. Thanks, Carlos.

Alright, Thank you very much good luck thanks Carlos.

Speaker 12: Our next question is from Emily Chang with Goldman Sachs.

Our next question is from Emily Chang with Goldman Sachs. Please proceed.

Speaker 13: Good morning Lorenzo and Salsa, thanks for taking my questions. My first one is just around your comment earlier around thinking about an EAF as a potential replacement to a blast furnace realign in the future. Perhaps could you give us a sense as to what's the timeline on this analysis and perhaps timeline to action being taken here?

Good morning, Lorenzo and salsa. Thanks for taking my questions. My first one is just around your comment earlier around.

Thinking about <unk>.

<unk> as a potential replacement to blast furnace realign in the future, perhaps could you give us a sense as to what's the timeline on this analysis and.

Perhaps the timeline to action being taken hill.

Speaker 3: I hope you understood that our strategy related to the environment is not centered on EAS. My strategy on the environment is to support the ones that really knock down emissions.

Yes.

I hope you.

Good morning by the way I Hope you understood that our strategy.

Related to the environment is not centered on Eas.

By strategy on the environment is to support the work that really knocked our ambitions.

Speaker 3: That's the transportation industry, the cars, that put out in the atmosphere 29% of the total CO2 that pollutes the air here in the United States.

The transportation in the cars that are out of the atmosphere to 89% of the total <unk>.

That pollutes.

Speaker 3: The steel industry is only 1%. So if you shut down the entire steel industry, integrate the emitting fuels included, you just reduced 1% of the emissions. But that's what we generate. So there's not a lot to be done by the steel industry. That's the very first thing that particularly Goldman Sachs, that is so eager to be making money on ESG, needs to understand that.

Here in the United States.

<unk> is only 1% so if you shut down the entire steel industry.

<unk> integrated in medium use included you just reduced to 1% of the emissions because thats, what we generate so theres not a lot to get done.

<unk>, that's the very first things, particularly with Goldman Sachs.

So eager to be making money on ESG needs to understand that.

Speaker 3: You're not, even if you shut down the entire steel industry, you just reduced 1%, so you did nothing.

Even if we shut down the entire steel industry, just reduced 1%. So if we did nothing.

Speaker 3: for the environment. You did not reduce any emissions. On the other hand, if you replace the entire fleet of cars, it's not going to happen overnight, but if you replace the entire fleet of cars.

For the environment.

Did not reduce any ambitious on the other hand.

If you replace the entire fleet of cars, it's not going to happen overnight.

Replacing tired fleet of cars.

Speaker 14: combustion engines with electric vehicles, then you knock it down 29%. So that's a good thing. So that's why we're so eager to support the car manufacturer.

Confused confused on agent agents with electric vehicles video market up 29%. So that's a good thing. So thats why were so eager to support the government of vectors.

Speaker 3: to go from ICEs to EVs, because that will be real in terms of emissions. And Goldman Sachs can make a lot of money doing the right thing. So I really would like to cheer Goldman Sachs to work on ESG, but work the right way, address the problem, not just what's the last shiny thing that you guys see in jumping the bandwagon.

No.

To go from.

Ice's to Evs.

Because that will be real in terms of emissions and Goldman Sachs can make a lot of money doing the right thing.

Really well.

Like two <unk>.

Goldman Sachs too.

Work on ESG, but what is the right way address the problem not just to us.

Less Chinese things that you guys see it.

Jumping to bandwidth.

Speaker 3: When it's time to rely on a blast furnace, it costs a lot of money. And I'm done with everything automotive that I'm doing, so I don't need to do anything else in terms of galvanizing lines. We have wide galvanizing lines. We have electro-galvanizing lines. We have all kinds of things that take care of automotive.

I think with Eas is.

When it's time to reliable experts across a lot of money.

Im going to resolve everything is automotive.

I'm doing so I don't need to do anything else in terms of galvanizing lines will get we have wide galvanizing line to have electro galvanizing lines, we have all kinds of things.

Speaker 15: But we also have hot bed, we also have cold wood, we also have galvanized for other uses.

Automotive.

But we also have hot band. We also have good rule and you also have governors for other uses.

Speaker 3: And that still doesn't need to come with the same level of respect.

And that still doesn't need to come with the same level of respect.

Speaker 3: So we can, instead of relying on the blast furnace, put up a DAF to melt scrap. And by the way, we have a lot of scrap because we want the scrap to come here.

Entre cushions and low sulfur diesel on that so we can instead of relying the blast furnace.

You have to melt scrap and by the way we have a lot of scrap because we won't script company. So.

Speaker 3: So at that time, I will do it. When that is going to happen? I don't know. In the future.

At that time, we'll do it when that is going to happen I don't know in the future.

Speaker 3: Certainly not in 2022. I don't believe it to be in 2023 either. So that will put us in a completely different position from the ones that are committing to deploy.

Certainly not in 2022, I don't believe it to be 2023, either so that will put us in a completely different position for the work that our committee.

Speaker 3: lot of billions of dollars just to get to the point that we are at. It's a good try. Let's see how it goes. My leverage is going down.

To deploy.

A lot of billions of dollars just to get to the point that we're at it's a good try let's see how to grow.

<unk> leverages going down.

Speaker 13: Understood. That makes sense. And my follow-up is just around your 2022 average selling prices. Appreciate the mark-to-market update there. Sounds like you've made some good progress with the recontracting there. Just curious as to if you can share what percentage of contracts still remain outstanding for renegotiation still. I'll leave it at that. Thank you. Yeah, we still have two that...

That's a good thing.

Understood that makes sense and my follow up is just around 2022 average selling prices appreciate the mark to market update.

It sounds like you've made some good progress with the re contracting that just curious as you.

If you can share what percentage of contracts still remain outstanding for arena.

Renegotiation still I'll leave it at that thank you yeah, we still have too.

Speaker 3: we need to finalize, but we are done with nine. So it's pretty good. So it was more complicated when I started because I had zero done and 11 to go.

We need to finalize but we have done with nine so it's pretty good so.

It was more complicated.

Because I have zero done in the 11% to go now we have $9 billion to go.

Speaker 16: Now we are nine done and two to go. I can't even, you know, if let's assume someone so far so good, the nine that we renegotiate, check the box nine times. So everybody accepted my term.

Let's assume someone so far so good the nine that we renegotiate check the box nine times, so everybody accepted my terms.

Speaker 3: Let's assume that one of these two do not accept.

Let us into one of these two.

Speaker 3: One of these two decides he doesn't want to accept my renegotiation.

Do not accept.

One of the two.

Decided.

He doesn't want to accept my mic.

Speaker 3: We may even help them expedite resolving the ship shortage, depending on the size of that client. Because if they can't get steel from us.

My renegotiation.

We may even help them expedite resolving the ship.

Shipyard, depending on the size of that client because.

They can't get steel for us.

Speaker 3: they will not be able to get from anyone. And so I see a lot more microchips available in the marketplace for my clients. But at this point, Emily, this is just a theoretical exercise. I believe that they will all come, the two ones that are.

It will not be able to get for annual and.

So I see a lot more micro chips available in the marketplace for my client, but at this point Emlen. This is just a theoretical exercise.

I believe that they will come there too.

Was that.

Our.

Speaker 3: renegotiate at this point, and we're going to be fine. We're going to be totally OK, and life is good. And the next thing will be just in time. We will be enforced as just in time, not just in case. So we're not going to continue to carry inventory for them for free. But that's another story. We can discuss that in the next conference call. That will happen in two months, so it's not a lot of time to wait.

Renegotiate at this point and well defined whether it be totally okay and life is good.

The next thing you Obi.

And time will be enforced as just in time not just in case. So we're not going to continue to carry inventory for them for free.

That's another story, we can discuss that in the next conference call that would have been two months. So it's not a lot of time to two weeks.

Alright, Thanks Darin Sir.

Thanks Emily.

Speaker 1: Our next question is from Seth Rosenfeld with CNP Paribas.

Our next question is from Seth Rosenfeld with CN.

N P Paribas Exane. Please proceed.

Speaker 17: Good afternoon. Thank you for taking our questions today and congrats on a good set of results.

Good afternoon. Thank you for taking our questions today and congrats on a good set of results.

Speaker 17: I can kick off with a question on volumes, I guess for the full year, for Q1.

I can pick up.

The question on volumes I guess for the full year cubic for Q1, even though a little bit.

Speaker 18: Give us a little bit of sense of to what extent we should expect a recovery after what was very good supply discipline back in Q4. I'm trying to understand the balance, Jack. You're pointing to recovering in auto demand, which I think we haven't heard from all of your peers as of yet. Is that strong enough to offset what appears to be weak demand amongst distributors?

To what extent, we should expect to recovery. After what was very good supply discipline back in Q4, because I'm trying to understand the balance yes.

Youre pointing to a recovery in auto demand, which I think we haven't heard from all of your peers as of yet is that strong enough to offset what appears to be continued weak demand amongst distributors. How do we think about the mixture of volume for Q1, and then going into Q2. Please.

Speaker 19: How do you think about the mix for volume, I guess, for Q1 and then going ahead to Q2, please?

Speaker 20: I'll start there, thank you. Good afternoon, Seth. Welcome back. We haven't heard from you in a long time. I hope your Fatherhood experience is going well and everything is fine. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thanks.

Good afternoon, Seth will come back who haven't heard in a long time I.

Hope you're.

We've experienced is going well and everything is fine.

Speaker 3: As far as volumes, our service center clients, they normally don't buy, you know, I was a service center guy for a long time, for 10 years, so I know more or less how the mindset works. They don't buy much between Thanksgiving and the end of the year, never do.

As far as <unk>.

Volumes.

Our service center clients.

<unk>.

Normally you don't buy it.

I was a service center Guy.

Our top 10.

10 years so.

That's how their mindset towards not.

They don't buy much between.

Can you give me in the MLP.

Nevertheless.

Speaker 3: The difference at this time is that a lot of the buying that was done earlier was done under distress for them. They were double ordering, they got more steel than they like to have and everything.

This was expected.

The difference at this time that a lot of the buying that was done earlier was.

Done under distress for them.

They were double ordering they got more stupid.

Speaker 21: But demand, underlying demand, continues to be great. So this inventory that they were sitting on is being worked down. And they are coming back. Demand, underlying demand, like I said, is good. And their direct demand to us will come back very soon. So Q2, Q3, Q4 volumes will be very good.

Like it to have an everyday.

But demand.

The bank continues to be great.

All of this inventories that they were sitting on is being working down in Datacom you back demand underlying demand like I said is good and their direct demand to us will come back very soon so Q2 Q3 Q4 volumes.

Speaker 22: just fine. And we're going to end up this year with a volume that's more or less in line with the volumes of 2021, slightly higher, slightly lower, but it's a good reference to start thinking.

Just fine.

Way to adopt this year with a volume that's more or less in line with the volumes of 2021 slightly higher slightly.

Slower, but it's a good reference to expecting.

Speaker 23: So don't believe that Q4 is, by any stretch, a new paradigm, because it's not.

So don't believe that Q4 is by any stretch our new paradigm because it's not.

I hope I answered a great if not please go ahead with a follow up.

Speaker 24: No, I think that's great. Just to clarify, I guess it sounds like Q1, perhaps still a bit on the light side, but Q2 to Q4, better confidence on volumes. Am I understanding that correctly?

No I think that's great just to clarify it sounds like Q1, perhaps still a bit on the light side, but Q2 to Q4 better confidence on volumes my understand that correctly.

Speaker 3: Yeah, yeah. Q1 volume should be higher than Q4. That's the most, probably most relevant takeaway.

Yes, yes.

It should be higher than Q4, that's the most.

Probably most relevant takeaway at this point.

Speaker 17: Thank you. And a separate question please with regards to DRI. Your Toledo plant has been a very good success so far, so congrats on that. When we think about the business going forward, obviously your strategy to charge us in your blast furnaces has been very good on the decarbonization side. Given the scale of your blast furnace capacity at present, do you have enough DRI inputs or is there interest in growing DRI for the blast furnaces? I think it's longer term that you've now brought up on EAF.

Okay. Thank you and the separate question please with regard to your.

<unk>, it's been a very good success, so far congrats on that.

When you think about the business going forward, obviously your strategy to charge offs and your blast furnaces.

Very good on the <unk> side, given the scale of your blast furnace capacity do you have enough cri.

Interest in growing gear for the blast furnaces.

Longer term as you've now brought up an EAA.

Speaker 25: expansion several years out, is DRI part of that?

Expansion a couple of years out.

Speaker 26: At this point, give or take, we are consuming 1.7 billion tons.

Part of that mix.

At this point, where we are.

Give or take we are consuming one 7 billion.

Speaker 3: million tons of, 1.7 million tons of HPI in our blast furnaces, and more or less 300,000 tons in our EAFs. We do have EAFs at this point, you know that. If and when we put more EAFs, at that point...

Billion tons.

Tons of.

One 7 million tons of <unk>, and our blast furnace and more or less $300000 Eas.

Yes at this point to know that.

If and when we bought Eas at that point.

Speaker 3: We are going to have more scrap because FPT continues to get new sources of scrap.

To have warrant scrap because SPT continues to get.

New.

Speaker 3: including brine scrap, on these stamping plants that we are doing closed loop with among our

Sources of scrap, including Brian scrap while this stumped stamping plants that were doing closed loop.

With among our automotive client so because we continue to rely on FCT. We don't believe that we're going to need more <unk>, we can be.

Speaker 3: So, because we continue to rely on FPT, we don't believe that we're going to need more HBI. We can be selective, we can keep our HBI for our blast furnaces, continue to use a portion in our EAFs.

We can.

Keep our API for our blast furnaces.

Continue to use a portion.

Speaker 27: And even when we have more EAFs, we'll grow the EAFs with scrap, not with nature.

In our Eas and even when we have more yes, we will grow the absolute scrap not with Spi remember this is an absolute before.

Speaker 28: Remember, these EAFs will be for lower specs, so scrap is good. The most environmentally friendly type of operation in distilled business is an EAF to produce rebar.

Lower specs so scrap is good the.

The most environmentally friendly type of operation as two business is <unk> to produce rebar.

Speaker 29: It's very low emissions when you melt scrap for rebar because it's pretty much it, you melt scrap.

It's very low emissions, when who built script for rebar, because it's pretty much at the melt scrap.

Speaker 30: produce rebar, as simple as that. When you start to complicate it, and you start to go up in the food chain, and you get to plateau, then you need pig iron from Russia, from Ukraine, from places that are very peaceful, you know, and it's good to have a strategy that you can't avoid.

Produce rebar.

With that I'm going to start to complicated Andrew start to go up in the food chain.

You'll get to flat rolled pig iron from Russia from grain will place us very peaceful.

And it's good to have a strategy.

Speaker 31: Ukraine or Russia at this point, or HPI that they don't have, so it will be fun to watch going forward.

Green or Russia at this point.

HDI that they don't have so it will be fun to watch going forward. This is not a one quarter business. This is a long term business.

Speaker 32: This is not a one-quarter business, this is a long-term business.

Speaker 3: And I strategize multi-year. You, Seth, were very concerned about the long-term contracts for me to sell HPI. You remember that, right?

<unk> book value.

Youssef, we're very concerned about.

The long term contracts for beta so it should be I remember that right.

Speaker 33: Do you know how much I'm selling off HBI to other people? Zero. Zero. So your concerns were totally unnecessary. You lost sleep for no reason.

How much of a cellular <unk> isolated people zero.

So your concerns were totally unnecessary.

At least for no reason.

Speaker 34: I'm very glad that it's being used in turn, and I think you're working well. Thank you very much for your time, John . All right, sir.

Yeah.

I'm very glad that thing you've been termite and Youre working well. Thank you very much right now right.

Speaker 3: I think we're done. I think we don't have any more questions. Thank you for being with us today. We are going to be back in two months.

I think we have done I think we don't have any more questions. So thank you for being with us today.

We are going to be back in two months Thats the shortlist.

Speaker 35: That's the shortest leap between Q1 and Q2. I can't wait to be talking to you about other things. We addressed a lot today. But we are going to be talking a lot more in Q2. ESG is a very important thing we are addressing. Making money is a very important thing we are making. Thank you. Thank you.

Leap between Q1, and Q2 I can't wait to be talking to you about the other things we address a lot today, but we are going to be talking a lot more in Q2.

<unk> is a very important thing we are addressing.

Making money is a very important thing we are making.

<unk>.

Sure.

Speaker 36: Cash to the shareholders is very important. We are doing, we continue to do. Paying down debt, we continue to pay down debt. A one-time leverage company with a strong position in the marketplace is a gift.

Cash to the shareholders is very important we will continue to do based on that we'll continue to pay down debt.

Our leverage company.

This strong position in the marketplace as a gift.

Speaker 37: If the gift is given to me, we use the buyback. Have a good rest of your day and a great weekend. We'll talk soon.

He has given to me was the buyback have a good rest of your day and a great weekend and we'll talk soon.

Speaker 38: Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Speaker 39: The.

Okay.

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