Q4 2023 Cleveland-Cliffs Inc Earnings Call
Good morning, Ladies and gentlemen, my name is Melissa and I am a conference facilitator today I would like to welcome everyone to Cleveland cliffs full year and fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. The company re.
Mind, 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 prevent protections of the private security.
Litigation Reform Act of 1995.
Although the company believes that 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.
Factors that could cause results to differ materially are set forth in reports on forms 10-K, and 10-Q and news releases filed with the SEC.
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 the call it will be archived on the website and available for replay.
The company will also discuss results excluding certain special items reconciliation for regulation G purposes can be found in the.
Earnings release, which was published yesterday at this time I would like to introduce itself, though Gonsalves executive Vice President and Chief Financial Officer.
Eloise Gonsalves: Good morning, everyone.
Eloise Gonsalves: Before discussing our 2023 results I'm going to start this call by briefly addressing our recent involvement in the U S. Steel sale process, and then I'll clarify, our M&A strategy and capital allocation priorities going forward.
Eloise Gonsalves: Just so everyone's on the same page Cleveland cliffs is referenced as company D. As in Delta in the proxy statement filed by U S steel last week.
Eloise Gonsalves: On December 18th 2023 U S steel announced its intention to sell the entire company to Nippon steel of Japan.
Eloise Gonsalves: And indicated their expectation to close the transaction by Q2 or Q3 of 2024. Following a brief customary regulatory review process that was characterized by the U S. Steel's CEO is having quote.
Eloise Gonsalves: Low level of risk.
Eloise Gonsalves: As we all know by now these were just a few of many severe misjudgments made by the U S Steel board their management team their lawyers at Milbank, and Wachtell and their financial advisors at Barclays and Goldman Sachs.
Deal is only a done deal when it closes and recent reports to make it clear that there are announced transaction with Nippon faces a very uncertain path to close.
Eloise Gonsalves: So theyre saga is not over.
Eloise Gonsalves: Cleveland Cliffs is the only company with recent experience and successfully closing acquisitions involving USW represented in iron and steel making assets.
Eloise Gonsalves: We did it twice in 2020, when we bought AK steel and a M USA.
One of which was a whole company transaction and the other of which was an acquisition of certain USW represented assets.
M&A deals involving unionized labor forces are a completely different animal than cookie cutter sale processes.
Eloise Gonsalves: Labor agreements are not black and white and practical implications of upsetting the unions are hard to predict.
Eloise Gonsalves: Our acquisition track record proves that we act opportunistically on deals, we execute and close value accretive transactions that benefit all stakeholders involved.
Eloise Gonsalves: The final proposal from cliffs to acquire U S. Steel included $27 in cash $27 in CLO stock and over $6 in synergy value to U S steel stockholders, combining for a total value of over $60 per share.
Eloise Gonsalves: The industrial logic of a cliffs U S steel combination goes without saying and that's the main reason we were willing to offer this value for the acquisition.
Theres no other buyer that can deliver $750 million in cost synergies.
Our offer provided the best value.
Eloise Gonsalves: And future upside for investors in the combined company.
Eloise Gonsalves: Our final proposal also included adequate remedies to mitigate antitrust regulatory risk and preserve our competitive market environment.
Eloise Gonsalves: Cleveland cliffs offered a clear path to close the transaction.
Eloise Gonsalves: But rather than working towards a deal with cliffs U S. Steel chose to announce the proposed sale of the company to a foreign buyer with serious conflicts of interest for America, no support or even awareness from the union and for a lower overall value.
Melissa: Good morning, ladies and gentlemen. My name is Melissa, and I am your conference facilitator today. I would like to welcome everyone to Cleveland Cliff's full year and fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.
U S steel clearly overestimated the regulatory antitrust risk with cliffs completely ignore the union and miscalculated, the political risk with Nippon given the negative implications to our supply chain and national security.
Melissa: After the speaker's remarks, there will be a question and answer session. 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 Security Litigation Reform Act of 1995. Although the company believes that 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 in reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website. Today's conference call is also available and being broadcast at clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay.
Eloise Gonsalves: So given all of this what is Cleveland cliffs planning to do about M&A and capital allocation going forward.
Eloise Gonsalves: We're gonna do exactly what we always do we're going to continue to be opportunistic on M&A.
Eloise Gonsalves: We're going to be buying back shares.
We're going to be paying down debt.
Eloise Gonsalves: In 2023, we generated more than $1 6 billion and free cash flow nearly $500 million of which came in the fourth quarter alone.
Eloise Gonsalves: We actually generated more cash in 2023 than we did in 2022, when our adjusted EBITDA was higher.
Eloise Gonsalves: We used most of this free cash flow to pay down debt last year, bringing our net debt down by $1 $3 billion year over year to only $2 9 billion as of the end of 2023 below our stated target of $3 billion.
Eloise Gonsalves: We have a balance sheet that can withstand volatility in the steel market, giving us flexibility to toggle capital allocation priorities as needed based on the opportunities in front of us.
Melissa: The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published yesterday. At this time, I would like to introduce Celso Gonsalves, Executive Vice President and Chief Financial Officer. Good morning, everyone.
Eloise Gonsalves: For now we plan to be even more aggressive with share buybacks given the discount presented in our stock.
Eloise Gonsalves: We still have over $600 million remaining in our existing share repurchase program and depending on market and other conditions, we plan to deploy the remainder of this dry powder during open windows.
Before discussing our 2023 results, I'm going to start this call by briefly addressing our recent involvement in the U.S. steel sale process, and then I'll clarify our M&A strategy and capital allocation priorities going forward. Just so everyone's on the same page, Cleveland Cliffs is referenced as Company D, as in Delta, in the proxy statement filed by U.S. Steel last. On December 18, 2023, U.S. Steel announced its intention to sell the entire company to Nippon Steel of Japan and indicated its expectation to close the transaction by Q2 or Q3 of 2024 following a brief customary regulatory review process that was characterized by the U.S. Steel A deal is only a done deal when it closes, and recent reports make it clear that their announced transaction with Nippon faces a very uncertain path to close. So their saga is not over.
Eloise Gonsalves: And by the way as of today, we have no MPI and we are free to trade and buy our stock as soon as the window opens tomorrow.
Eloise Gonsalves: With that said, we will also continue to reduce our net debt.
Eloise Gonsalves: Over the past two years, we have allocated roughly 85% of our free cash flow to debt repayment.
Eloise Gonsalves: During this period that reduction was our number one capital allocation priority.
Eloise Gonsalves: With share buybacks and M&A opportunities explored opportunistically.
Eloise Gonsalves: Going forward share buybacks are now the number one priority.
Eloise Gonsalves: We have already paid off the entire balance of our ABL.
Eloise Gonsalves: This is a notable accomplishment that has brought our current liquidity above $4 5 billion.
Eloise Gonsalves: The highest level in our company's history.
Eloise Gonsalves: Our debt reduction will now be executed primarily via open market bond repurchases and redemptions.
Eloise Gonsalves: From an operational standpoint, 2023 was another blockbuster year for Cleveland cliffs.
Eloise Gonsalves: We delivered record shipments both in total and specifically to the automotive industry.
Eloise Gonsalves: We reduced cost by $80 per ton in 2023, and generated $1 9 billion and adjusted EBITDA.
Cleveland Clifts is the only company with recent experience in successfully closing acquisitions involving USW-represented iron and steelmaking assets. We did it twice in 2020 when we bought AK Steel and AMUSA, one of which was a whole company transaction, and the other of which was an acquisition of certain USW-represented assets. M&A deals involving unionized labor forces are a completely different animal than cookie-cutter sale processes. Labor agreements are not black and white, and practical implications of upsetting the unions are hard to predict.
Eloise Gonsalves: With the successful negotiation of our call and alloys.
Eloise Gonsalves: The supply agreements the purging of higher cost inventory in 2023.
Lower natural gas hedges and continued healthy operating rates, we expect to achieve another $30 per ton and cost reductions in 2024, equating to roughly $500 million in <unk>.
EBITDA increase just from these cost reductions.
Eloise Gonsalves: In the fourth quarter of 2023, we generated adjusted EBITDA of $279 million, which we believe is the trough in quarterly adjusted EBITDA going forward.
Our acquisition track record proves that we act opportunistically on deals. We execute and close value-accretive transactions that benefit all stakeholders involved. The final proposal from Cliffs to acquire U.S. Steel included $27 in cash, $27 in CLF stock, and over $6 in synergy value to U.S. Steel stockholders, combining for a total value of over $60 per share.
We reported our fourth consecutive quarter of shipments above 4 million tonnes compared to 2022, and which all four quarters were below this level.
Eloise Gonsalves: We generated $487 million of free cash flow affirming our prior commentary that working capital would be a meaningful source of cash for us in Q4.
From an EPS standpoint, it's important to note that we reported both GAAP and adjusted EPS for Q4.
The industrial logic of a Cliff's U.S. Steel combination goes without saying, and that's the main reason we were willing to offer this value for the acquisition. There's no other buyer that can deliver $750 million in cost synergy. Our offer provided the best value and future upside for investors in the combined company. Our final proposal also included adequate remedies to mitigate antitrust regulatory risk and preserve a competitive market environment. Cleveland Cliffs offered a clear path to close the transaction.
Eloise Gonsalves: The adjusted EPS figure backs out a small onetime noncash goodwill impairment related to our noncore tooling and stamping business previously known as precision partners, which was a small company that AK steel had bought before we acquired them in 2020.
Based on revised capital priorities and higher discount rates, we decided to write off the goodwill value related to those non core assets as we had foreshadowed in our 10-K.
Eloise Gonsalves: Our capital expenditures in 2024 should remain at similar levels as 2023, with an expected outflow of $675 million to $725 million for the full year.
But rather than working towards a deal with Cliffs, U.S. Steel chose to announce a proposed sale of the company to a foreign buyer with serious conflicts of interest for America, no support or even awareness from the union, and for a lower overall value. U.S. Steel clearly overestimated the regulatory antitrust risk with CLIFS, completely ignored the Union, and miscalculated the political risk with Nippon, given the negative implications on our supply chains and national security. So, given all of this, what is Cleveland Cliffs planning to do about M&A and capital allocation going forward? We're going to do exactly what we always do. We're going to continue to be opportunistic in M&A. We're going to be buying back shares. And we're going to be paying down debt. In 2023, we generated more than $1.6 billion in free cash flow, nearly $500 million of which came in the fourth quarter alone.
Eloise Gonsalves: I would note that this is by far the lowest amongst our peers with our equipment in very good shape and no plans to add any capacity.
Eloise Gonsalves: Our DD&A projection for 2024 is about $950 million a decline from 2023.
Eloise Gonsalves: Our SG&A expense should be around $550 million also a small decline from 2023.
Eloise Gonsalves: Furthermore, our automotive and other fixed contract pricing should remain in the same ballpark as 2023, which should actually promote some margin expansion due to our lower costs.
Finally, you should note that we have uploaded an earnings presentation to our website for the benefit of our investors.
While we don't plan to go through the slides during this call. We believe that you will find the materials to be a helpful reference to our financial highlights.
We actually generated more cash in 2023 than we did in 2022, when our adjusted EBITDA was higher. We used most of this free cash flow to pay down debt last year, bringing our net debt down by $1.3 billion year over year to only $2.9 billion as of the end of 2023, below our stated target of $3 billion. We have a balance sheet that can withstand volatility in the steel market, giving us flexibility to toggle capital allocation priorities as needed, based on the opportunities in front of us. For now, we plan to be even more aggressive with share buybacks, given the discount presented in our stock. We still have over $600 million remaining in our existing share repurchase program, and depending on market and other conditions, we plan to deploy the remainder of this dry powder during open windows.
Eloise Gonsalves: Going forward, we plan to update this presentation each quarter for your convenience.
Eloise Gonsalves: With that I will turn it over to Lorenzo.
Lorenzo: Thank you Michelle.
Lorenzo: Sure.
Welcome everyone to this call today.
Lorenzo: We are very pleased with what we were able to accomplish in 2023.
Lorenzo: Our total shipments of $16 4 million tonnes clearly demonstrated what our operations are now capable off.
Lorenzo: For reference in two.
Lorenzo: So anyone which was our first full year under the current configuration.
Lorenzo: Even with demand off the charts for basically the entire year, we only did $15 9 million of those of shipments and that was with one more blast furnace operations than we have right now.
And by the way, as of today, we have no MMPI, and we are free to trade and buy our stock as soon as the window opens tomorrow. With that said, we will also continue to reduce our net debt. Over the past two years, we have allocated roughly 85% of our free cash flow to debt repayment. During this period, debt reduction was our number one capital allocation priority.
Lorenzo: I'm also proud of the successful implementation of the cliffs, H surcharge, which applies to the steel we produce through the BS.
Lorenzo: Route using HCI as feedstock in the blast furnaces.
Lorenzo: This is actually the only true green steel premium that exists in the marketplace.
With Share Buybacks and M&A Opportunities, Explore Opportunities. Going forward, share buybacks are now the number one priority. We have already paid off the entire balance of our ABL.
Lorenzo: With good <unk>.
Lorenzo: We're able to implement a tangible way for us to be a monetary recognized for the real environmental gains and seal to emissions reduction we have achieved over the last several years.
This is a notable accomplishment that has brought our current liquidity above $4.5 billion, the highest level in our company's history. Our debt reduction will now be executed primarily via open market bond repurchases and redemption.
Lorenzo: With this success. We are pleased that we were able to hold our automotive pricing roughly steady into 2024, despite low price competition in the marketplace.
Lorenzo: Going forward, we expect a lot of progress over the next decade with emphasis on hydrogen.
From an operational standpoint, 2023 was another blockbuster year for Cleveland Cliffs. We delivered record shipments, both in total and specifically to the automotive industry. We reduced costs by $80 per ton in 2023 and generated $1.9 billion in adjusted EBITDA due to the successful negotiation of our coal and alloy contracts. Supply Agreements, the purging of higher cost inventory in 2023, lower natural gas hedges, and continued healthy operating rates; we expect to achieve another $30 per ton in cost reductions in 2024, equating to roughly $500 million in EBITDA increase just from these cost reductions. In the fourth quarter of 2023, we generated adjusted EBITDA of $279 million, which we believe is a trough in quarterly adjusted EBITDA going forward. Additionally, we reported our fourth consecutive quarter of shipments above 4 million tons compared to 2022, in which all four quarters were below this level. We generated $487 million of free cash flow, affirming our prior commentary that working capital would be a meaningful source of cash for us in Q4.
Lorenzo: We have deployed $10 million to build a hydrogen pipeline on site in preparation for the hydrogen hub to be built in Indiana with funding from the department of energy hydrogen initiative.
Lorenzo: The pipeline is rich.
Lorenzo: And late last week, we initiated our second blast furnace hydrogen injection trial.
Lorenzo: Friday, the 26th we inject H true gas for over an hour into this three years, that's our Indiana Harbor number seven blast furnace, the largest blast furnace in the western hemisphere.
Speaker Change: Great success.
Speaker Change: The trial resumed yesterday, when we injected the hydrogen.
<unk> was seven for most of the day.
Speaker Change: This trial continues to date, we have.
Speaker Change: We're very excited with the positive results, we have gone so far on production process control quality of hot metal and steel too ambitious.
Speaker Change: They're gonna allergic go standpoint, hydrogen as a blast furnace reductions works very well.
Speaker Change: Hydrogen is the real game changer.
Speaker Change: Events in iron, making and the steelmaking.
And Thats, our Cleveland cliffs best way for the production off of Green steel.
Speaker Change: We appreciate the partnership Cleveland Cliffs has with the department of energy as well as we had several other cabinet level offices.
From an EPS standpoint, it's important to note that we reported both GAAP and adjusted EPS for Q4. The adjusted EPS figure backs out a small, one-time, non-cash goodwill impairment related to our non-core tooling and stamping business, previously known as Precision Partners, which was a small company that AK Steel had bought before we acquired them in 2020. Based on revised capital priorities and higher discount rates, we decided to write off the goodwill value related to those non-core assets, as we had foreshadowed in our tent today. Our capital expenditures in 2024 should remain at similar levels as 2023, with an expected outflow of $675 to $725 million for the full year.
Speaker Change: Due to the efforts of the by the administration and it's very important to emphasize that.
<unk> parts of support in Congress.
Speaker Change: Nike stages closer than anyone else to becoming the first country in the world to have abundant and competitively priced green hydrogen available to support a true green industrial Revolution.
Speaker Change: We are also grateful for our partnership with our gas gas supplier lean day and these efforts Linda remains as committed to this technology as we are.
Speaker Change: Speaking of Tech knowledge.
Speaker Change: America <unk> steelmaking technology is superior when compared to foreign steelmakers.
I would note that this is by far the lowest amongst our peers, with our equipment in very good shape and no plans to add any capacity. Our dDNA projection for 2024 is about $950 million, a decline from 2020. Our SG&A expense should be around $550 million, also a small decline from 2020. Furthermore, our automotive and other fixed contract pricing should remain in the same ballpark as 2023, which should actually promote some margin expansion due to our lower cost. Finally, you should note that we have uploaded an earnings presentation to our website for the benefit of our investors. While we don't plan to go through the slides during this call, we believe that you will find the materials to be a helpful reference to our financial highlights.
Speaker Change: Gazing points this.
Speaker Change: <unk> emissions intensity of cliffs blast furnaces.
Speaker Change: Our 25% to 40% better than the ambition of the associated with steel produced through similar equipment in Japan, Korea, China or Europe.
Speaker Change: Said another way.
Speaker Change: None of the top 10 as steel makers in the world have been <unk> emissions profile than Cleveland cliffs.
Speaker Change: None.
Speaker Change: Better than each one of them by a large margin.
Speaker Change: Our numbers are better because our technology is far ahead.
Speaker Change: Their so called quote pick up organizationally strategies unquote.
Speaker Change: The things we have been doing at cliffs for a long time and have perfected.
The use of iron ore pellets.
Lorenzo: Going forward, we plan to update this presentation each quarter for your convenience. With that, I will turn it over to Lorenzo. Thank you so much, and we welcome everyone to this call today. We are very pleased with what we were able to accomplish in 2023. Our total shipments of 16.4 million tons clearly demonstrated what our operations are now capable of.
Speaker Change: Natural gas utilization as reductions.
Speaker Change: <unk> use as feedstock in blast furnaces and now hydrogen injection.
Speaker Change: In the United States. The cliffs brand is synonymous with technology innovation.
Speaker Change: And quality steel.
Speaker Change: We are the benchmark.
Speaker Change: And the Oems.
Speaker Change: Recognize that.
Lorenzo: For reference, in 2021, which was our first full year under the current configuration, even with demand off the charts for basically the entire year, we only did 15.9 million tons of shipment. And that was with one more blast furnace operating than we have right now. I'm also proud of the successful implementation of the CLIFFS-H surcharge, which applies to the steel we produce through the BF-BOF route using HPI as feedstock in the blast furnace. This is actually the only true green steel premium that exists in the marketplace.
Speaker Change: Our technology.
Speaker Change: Our reputation.
Speaker Change: And we will continue to be on the cutting edge to ensure that these technological advantage is stays with us.
Speaker Change: As for the broader market. We are of course pleased to see that each of our price increases announced over the last several months while successfully implemented after the market. Once again lost touch with reality in the August September 2023 time frame.
Speaker Change: The underlying basis through nearly all of our strategic moves over the past decade has been the ongoing and inevitable increase in the tightness of faros of scrap metal in the United States, particularly prime scrap.
Lorenzo: With Glyphs-H, we were able to implement a tangible way for us to be monetarily recognized for the real environmental gains and CO2 emissions reduction we have achieved over the last several years. With this success, we are pleased that we are able to hold our automotive pricing roughly steady into 2024, despite low price competition in the market. Going forward, we expect a lot of progress over the next decade with an emphasis on hydrogen. We have deployed $10 million to build a hydrogen pipeline on site in preparation for the Hydrogen Hub to be built in Indiana with funding from the Department of Energy Hydrogen Initiative. The pipeline is ready, and late last week, we initiated our second blast furnace hydrogen injection trial. On Friday, the 26th, we injected H2 gas for over an hour into the two ears at our Indiana Harbor No.
Speaker Change: In 2023, the Bush leaves script price average $490 per gross grew strong.
Speaker Change: Number about $100 higher than the prior decade average.
Speaker Change: After only our scrap company SPT for more than two years is now very clear to us that scrap is very valuable, particularly here in the United States.
Speaker Change: Keep in mind, the steel market in the United States is different from the rest of the entire world.
Speaker Change: Here more than 70% of steel production uses eas and therefore, a lot of scrap.
Speaker Change: Since we acquired <unk> in November of 2021, we have been working to allow for the natural forces of supply and demand to prevail instead of settling for the power of an industry dominated by a couple mega buyers of scrap.
Lorenzo: 7 blast furnace, the largest blast furnace in the Western Hemisphere, with great success. The trial resumed yesterday when we injected hydrogen at Indiana Harbor 7 for most of the day. The trial continues today. We are very excited with the positive results we have got so far on production, process control, quality of hot metal, and CO2 emissions. From the mineralogical standpoint, hydrogen as a blast furnace reducer works very well.
Speaker Change: A lot of this I'll call. It the cyclicality of this business in North America is self inflicted.
Speaker Change: Hey caused by the strange ways is scrap is transacted.
Speaker Change: Once these skus issue is finally resolved.
Speaker Change: Efficiencies analogy would be eliminated and HRC prices can be stable for extended periods of time.
Speaker Change: Finally, and it is now.
Speaker Change: We were prepared to delivered $60.50 per share of value 40, west still well in excess of any other bidder and we that cash and stock structure that there are major stockholders told us they prefer over an all cash offer keep in mind there.
Lorenzo: Hydrogen is the real game-changer. Events in Ironmaking and Stewmaking. And that's our equivalent glyph pathway for the production of green steel. We appreciate the partnership Cleveland Cliffs has with the Department of Energy, as well as with several other cabinet-level offices, due to the efforts of the Biden administration, and it's very important to emphasize that bipartisan support in Congress. The United States is closer than anyone else to becoming the first country in the world to have abundant and competitively priced green hydrogen available to support a true green industrial revolution. We are also grateful for our partnership with our gas supplier, Linde, in these efforts. Linde remains as committed to this technology as we are. Speaking of technology, American ironmaking and steelmaking technology is superior when compared to foreign steelmakers. Gazing Point. The CO2 emissions intensity of cliffs, blast furnaces, and DOFs is 25% to 40% better than the emissions associated with steel produced through similar equipment in Japan, Korea, China, or Europe. Set it out of the way.
Speaker Change: Our major stockholders, Yeah, Delaware company are also our major shareholders.
Speaker Change: Ohio Company.
Speaker Change: As we speak with them very frequently.
Speaker Change: Unfortunately.
Speaker Change: Not delivered the superior value to <unk> stockholders, because the rescue board stood in the way.
Speaker Change: <unk> has been to sell to a foreign entity.
Speaker Change: And despite floods as recent in their proxy statement.
Speaker Change: Based on our.
Speaker Change: <unk> analysis of the antitrust risk.
Speaker Change: We're fully confident in our strategy to clear any regulatory risks.
Speaker Change: We are truly disappointed for the U S steel employees.
Speaker Change: Particularly the unionized workforce.
Speaker Change: There is only one reason the USW exclusively book bag, Cleveland cliffs and assigned to us they're right to be it.
Lorenzo: None of the top 10 steelmakers in the world have a better CO2 emissions profile than Cleveland Cliff. I'm not. We are better than each one of them by a large margin.
It is our proven commitment to not just preserve but to grow good American manufacturing jobs.
Speaker Change: America Middle class jobs, and maintain America ownership of industries critical to our national security and to our supply chain.
Lorenzo: Our numbers are better because our technology is far ahead; their so-called, quote, decarbonization strategies, unquote, are things we have been doing at CLIFS for a long time and have perfected. The use of our war pellets, natural gas utilization as a result. HBI used as feedstock in the blast furnace, And now, Hydrogen Injection.
Speaker Change: Fortunately for the workforce, we do not believe that the final chapter of the story has been reached.
Speaker Change: It is now evident that the US steel board of directors made two severe miscalculations, the overrated reputation of antitrust regulatory risk related to cliffs.
Speaker Change: And they completely underappreciated the risks related to the <unk> review.
Lorenzo: In the United States, the Glyphs brand is synonymous with technological innovation and Quality Steel. We are the benchmark, and the OEMs recognize that. Our technology got us our agitation, and we will continue to be on the cutting edge to ensure that this technological advantage stays with us. As for the broader market, we are, of course, pleased to see that each of our price increases announced over the last several months was successfully implemented after the market once again lost touch with reality in the August-September 2023 time frame. The underlying basis for nearly all our strategic moves over the past decade has been the ongoing and inevitable increase in the tightness of ferrous scrap metal in the United States, particularly prime scrap. In 2023, the bushland scrap price averaged $490 per gross ton, a number about $100 higher than the prior decade average.
Speaker Change: And the USW Union contractual rights.
Speaker Change: We applaud the Biogen nutrition for raising alarm bells on this proposed transaction.
Along with influential elected officials at the Senate and then at the household representatives.
Speaker Change: Both sides of the aisle.
Speaker Change: <unk> has been very clearly expressing their views.
Speaker Change: We believe the rightfully see this transaction with new fall as proposals being bad for America and bad for American workers.
Speaker Change: As we all know it's hard to point out a single subject that can unify depositions in the opinions of Democrats and Republicans.
At this moment in time.
Speaker Change: It will be seen as a miracle well the armed forces are made by the US steel board of directors was able to promote this miracle.
Speaker Change: That's why we believe that the mistake will be fixed.
Speaker Change: Lastly earlier rather than later.
Speaker Change: Our part we will continue to fight for our industry or our company, our shareholders and for the medical workers.
Lorenzo: After owning our scrap company, FPT, for more than two years, it's now very clear to us that scrap is very valuable, particularly here in the United States. Keep in mind, the steel market in the United States is different from the rest of the entire world. Here, more than 70% of steel production uses EAFs, and therefore, a lot of scrap.
Speaker Change: With that I will turn it over to Luisa for Q&A.
Luisa: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Lucas pipes with B Riley Securities. Please proceed with your question.
Lorenzo: Since we acquired FPT in November of 2021, we have been working to allow for the natural forces of supply and demand to prevail instead of settling for the power of an industry dominated by a couple mega buyers of scrap. A lot of the so-called cyclicality of this new business in North America is self-inflicted and caused by the strange ways scrap is transacted. Once this serious issue is finally resolved, artificial seasonality will be eliminated, and HRC prices will be stable for extended periods of time.
Lucas N. Pipes: Thank you so much operator, good morning, everyone.
Lucas N. Pipes: Lorenzo to go back to your U S steel comments, just a moment ago I wanted to.
Lucas Pipes: Asquith.
Lucas N. Pipes: It gives you gave you the confidence in the synergies while also potentially having to meet divestiture requirements to clear.
Lucas N. Pipes: That trust would really appreciate your perspective, thank you.
We had a package of good morning Lucas.
A package.
Lucas N. Pipes: Doug.
Lucas N. Pipes: Our alternative data.
Lucas N. Pipes: We are discussing with the bank.
Lucas N. Pipes: Bank.
Lucas N. Pipes: That we believe would be.
Lorenzo: Finally, as it's now public, we were prepared to deliver $60.50 per share of value for U.S. Steel, well in excess of any other bidder and with a cash-in-stock structure that their major stockholders told us they preferred over an all-cash offer. Keep in mind, their major stockholders, they are a Delaware company, are also our major shareholders. We are an Ohio company, and we speak with them very frequently. Unfortunately, we could not deliver the superior value to the U.S. Steel stockholders because the U.S. Steel Board stood in the way and was helped then to sell to a foreign entity. And, despite what is written in their proxy statement, based on our... In our substantive analysis of the antitrust risk, we were fully confident in our strategy to clear any regulatory risk.
Lucas N. Pipes: More than sufficient.
Lucas N. Pipes: We all regulatory hurdles and Thats included.
Lucas N. Pipes: The commitment and sell pellets to others.
Lucas N. Pipes: Medical sales labs to others.
Other commitments on.
Lucas N. Pipes: Supply agreements and we will go all the way through some divestitures up to a level of $2 billion in revenues that should do it based on our own homework done with.
Lucas N. Pipes: Our knowledge of the Doj works, the antitrust division of the Doj works and our deep experience.
Lucas N. Pipes: Led by Howard <unk>.
Lucas N. Pipes: Fortunately, we had ever had.
Lucas N. Pipes: We may partner, even though we're discussing in terms of working together.
Never had a leading partner with <unk> and by the way for the record the $7 billion.
Lucas N. Pipes: Also in revenues was never.
Lorenzo: We are truly disappointed for the U.S. steel employees, particularly the unionized workforce. There is only one reason the USW exclusively bans Cleveland Glyphs and assigns to us their right to bid. It's our proven commitment to not just preserve but to grow good American manufacturing jobs, good American middle class jobs, and maintain American ownership of industries critical to our national security and to our supply chain. Fortunately for the workforce, we do not believe that the final chapter of this story has been written. It's now evident that the U.S. Steel Board of Directors made two severe miscalculations. They overrated the potential antitrust regulatory risk related to clips. And they completely underappreciated the risks related to the CFIUS review and the USW Union Contractual Rights.
Lucas N. Pipes: Revealed to us and it was it was an internal discussion about USD was just an internal discussion it was ever discovered even discussed with us so.
Lucas N. Pipes: They had brought that to the conversation.
Easily done it so we're very very confident on what we have done and all the homework. We did we don't get into support we had.
Lucas N. Pipes: The administration from.
Lucas N. Pipes: Sure.
Lucas N. Pipes: Elisa.
Lucas N. Pipes: FIFA political figures over the last on the right on the center and Youll know the names of the if I need to say the name for clarify before they have to do it and that was totally ignored so.
Lucas N. Pipes: Absolutely we will harvest what you saw at this point.
Lucas N. Pipes: We will see stay put.
Speaker Change: I appreciate the color.
Can you talk about synergies.
Speaker Change: Although we are operating synergies, we usually we we.
Speaker Change: Under promising over the debt as what happened with AK steel that's what's happened when we acquired Arcelormittal USA. So.
Lorenzo: We applaud the Biden administration for raising alarm bells on this proposed transaction. Along with influential elected officials in the Senate and in the House of Representatives on both sides of the aisle, the Biden administration has been very clearly expressing its view. We believe they rightfully see this transaction with Nippon as proposed being bad for America and bad for American workers. As we all know, it's hard to point out a single subject that can unify the positions and the opinions of Democrats and Republicans. At this moment in time, it would be seen as a miracle.
Speaker Change: At this point with U S steel would be more of the same just in a bigger scale. So that would come from purchasing that would come from.
Speaker Change: Services background healthcare.
Speaker Change: Renegotiations.
Speaker Change: All kinds of good stuff is tough in terms of having a bigger footprint and a lot more.
Our ability to negotiate.
Speaker Change: <unk>.
Speaker Change: Much more.
Speaker Change: Abroad type of footprint.
Speaker Change: <unk>.
Speaker Change: Very importantly, our synergies we're not.
Speaker Change: <unk> that we would shut down any facility and will not be letting go any single.
Speaker Change: Employee A&D single work at the plant off we're still at Glu.
Melissa: Well, the unforced error made by the Westfield Board of Directors was able to promote this miracle. That's why we believe that the mistakes will be fixed, hopefully, earlier rather than later. On our part, we will continue to fight for our industry, for our company, our shareholders, and for the American workers. With that, I'll turn it over to Melissa for Q&A. Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: <unk> for that matter.
Speaker Change: So that would not be good thing drops.
Speaker Change: So I'll leave at that but.
Speaker Change: We had a robust proposal and.
They elected to go in a different different direction would look like I said on December 18 would look on closing.
Speaker Change: Thank you. Thank you Lorenzo.
Speaker Change: I appreciate that color.
In the meantime.
Many companies in the sector with strong cash flow has to move.
It's kind of a formulaic approach to capital returns.
Lucas N. Pipes: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Lucas Pipes with B. Reilly Securities. Please proceed with your question. Thank you so much, operator. Good morning, everyone.
Speaker Change: Allocating or percentage of available free cash flow to do buybacks. For example, you mentioned earlier.
Speaker Change: Buybacks debt reduction and opportunistic M&A, yes.
Speaker Change: Three areas of capital allocation, but I wondered if you.
Speaker Change: I would be prepared to move towards.
Lorenzo: Lorenzo, to go back to your U.S. Steel comments just a moment ago, I wanted to ask you, what gave you confidence in the synergies while also potentially having to meet divestiture requirements to clear antitrust? We'd really appreciate your perspectives. Thank you. Yeah, we had a package. Good morning, Lucas.
Speaker Change: Percentage for example towards buybacks and I. Appreciate your color. Thank you look at the OLED social answer this one.
Speaker Change: Yeah, Hey, Lucas.
Speaker Change: So as I stated we've.
Speaker Change: In the prior quarters, we've allocated about 85% of free cash flow to debt reduction.
Speaker Change: Well, we're going to do going forward is we're going to be flexible we're going to be a lot more aggressive with share buybacks, but you can sort of estimate that it will be sort of 50 50.
Lorenzo: We had a package that we, our attorneys with whom they spoke, were discussing with the attorneys at Buick Bank that we believe would be more than sufficient to clear all regulatory hurdles. And that included the commitment to sell pellets to others, the commitment to sell labs to others, and other commitments on supply agreements. And we would go all the way to some divestitures up to a level of $2 billion in revenues. That should do it, based on our own homework done with the DOJ, our knowledge of how the DOJ works, the antitrust division of the DOJ works, and our deep experience led by our challenge of big spoke. Unfortunately, we never had a willing partner; even though we discussed terms of working together, we never had a willing partner with Milbank.
Speaker Change: Buybacks and debt reduction.
And the reason that we're not putting in place a dividend at this point for example, because we want to remain flexible.
Speaker Change: There are a lot of M&A opportunities available.
Speaker Change: Including the one that that was announced in December we don't think that story is over yet.
Speaker Change: So I think staying with this 50 50 split it gives us enough flexibility to toggle.
Speaker Change: Priorities and be able to move quickly if opportunities present themselves.
Speaker Change: That's very helpful.
Speaker Change: I appreciate the color.
Speaker Change: To your entertainment cluster continued best of luck, Thanks look Lukas measure because.
Speaker Change: Thank you. Our next question comes from the line of Timna Tanners with Wolfe Research. Please proceed with your question.
Timna Beth Tanners: Good morning.
Timna Beth Tanners: Just to clarify if I could ask some of your 2024 EBITDA color.
Timna Beth Tanners: I'm sorry, the guidance that you gave.
Timna Beth Tanners: You bet your life forecast, so you're talking about.
Lorenzo: And by the way, for the record, the $7 billion hurdle in revenues was never revealed to us. It was an internal discussion, or it was just an internal conversation. It was never even discussed with us. So if they had brought that up in the conversation, we would easily turn it down. So we were very, very confident in what we had done and all the homework we did. But we don't get the support we used to from the administration, from eminent people, political figures on the left, on the right, on the center. And you know the names, and if I need to say the names to clarify, I'll be more than happy to do so.
Timna Beth Tanners: <unk> volumes, and I think $30 per ton of lower costs on a net basis.
And then on the pricing side.
Timna Beth Tanners: So you can use a teacher to Cameroon forecast I was hoping for a little bit more color on the comment about why you think prices shouldn't tell below a thousand given the futures market well below that so just a little more color on making sure I have those numbers right on the future.
Timna Beth Tanners: On the outlook and also your thoughts on my comment on that.
Speaker Change: Good morning, Julien, let me start with their futures.
Julien: The futures are fixed.
Julien: Picture.
Julien: Because it's done by desk that guide that if I showed in our hot rolled coil cold rolled galvanized quote normal stable they still kind of differentiated work from the other any and all that.
Lorenzo: And that was totally ignored. So you absolutely harbored what you saw. And at this point, we'll see. Stay put. I forgot to talk about synergies.
Julien: So they can go up and down 200 $250 per ton in a day and they do that with absolutely no consequences. So thats my opinion futures.
Lorenzo: You know how we operate with synergies. Usually, we under-promise and over-deliver. That is what happened with AK Steel.
Julien: Basically you can use that thing.
Toilet paper.
Speaker Change: It's useless.
Speaker Change: Yes.
Lorenzo: That's what happened when we acquired ArcelorMittal USA. So at this point, with US Steel, it would be more of the same, just on a bigger scale. So that would come from purchasing, that would come from the services background, health care, renegotiations, all kinds of good stuff in terms of having a bigger footprint and a lot more ability to negotiate out of a much more broad type of footprint. And very importantly, our synergies were not anticipating that we would shut down any facility and would not be letting go of any single union employee, any single worker at the plants of US Steel or Cleveland Cliffs, for that matter.
Because.
Speaker Change: We have a few producers of hot rolled in the country.
Speaker Change: View everyday with the thing and we buy we sell we transact we produce and we know a lot more about the future.
Speaker Change: The futures so.
Reset yourself, Tina Unplug yourself from the wall plug again, theyre going to be okay with pricing going forward.
Speaker Change: And then you are not going to be talking about.
Speaker Change: <unk> and things like that because I see potential in you.
Speaker Change: As far as the EBITDA guidance.
$30.
Speaker Change: <unk> is basically the $500 million of it.
Speaker Change: We're talking about before multiplied 30 box by $16 5 million tonnes of shipments that got to 495, So I am rounding up to 500.
Lorenzo: So that would not be cutting jobs. So I'll leave it at that, but we had a robust proposal, and they elected to go in a different direction. Good luck. Like I said on December 18th, good luck on closing. Thank you, Lorenzo. I appreciate that color.
Speaker Change: Got it okay. That's helpful.
Speaker Change: This market is tiny I get it it does something.
Speaker Change: So I just wanted to ask about that.
Speaker Change: Clarifying.
Speaker Change: People like.
Speaker Change: Due to talk let guy talk to make sure that the people that look stopped looking.
Speaker Change: Because if they stop Luke is a good good good start.
Speaker Change: And if people like you will help.
Lucas N. Pipes: In the meantime, many companies in the sector with strong cash flow have moved towards a kind of a formulaic approach to capital returns, allocating a percentage of available free cash flow to buybacks, for example. You mentioned earlier buybacks, debt reduction, and opportunistic M&A as three areas of capital allocation. But I wondered if you would be prepared to move towards a percentage, for example, towards buybacks. I would appreciate your comment on this. Thank you. Lucas, let's also answer this one.
Speaker Change: Licensed via look user.
Speaker Change: Cause you are knowledgeable you will know that think sucks. You'll note that I think is useless, you'll know that that thing is just a thing for people to sell.
Speaker Change: The newsletters everyday.
Speaker Change: It's absolutely using it there is a lot of wells being destroyed by the use of these things it's about time for us.
Speaker Change: Uh huh.
Speaker Change: Our business community to understand that.
It's fair to make money, but let's make money doing things that are constructed and that thing is disruptive is not control I am sorry, I interrupted you go ahead. Please no that's okay I'll leave it there Linda thanks again thank.
Thank you.
Lucas N. Pipes: Go ahead. Go ahead. Yeah. Hey, Lucas.
Forget about the resetting thing at Sears.
So, as I stated, in the prior quarters, we've allocated about 85% of free cash flow to debt reduction. What we're going to do going forward is we're going to be flexible. We're going to be a lot more aggressive with share buybacks, but you can sort of estimate that it will be sort of 50-50 buybacks and debt reduction. And the reason we're not putting in place a dividend at this point, for example, is that we want to remain flexible. There are a lot of M&A opportunities available, including the one that was announced in December. We don't think that story is over yet.
Speaker Change: Thank you. Our next question comes from the line of Christian <unk> with BNP Paribas. Please proceed with your question.
Christian: Yes, hi, good morning, and thank you for taking my questions.
Christian: The first question is on the scrap market.
Christian: Part of it Mike.
Christian: Some artificial moves and disrupt market and probably retro to January settlement. So.
Christian: So it would be keen to have your view on what you think happened and what do you think needs to happen in the market <unk>, what do you call Sir.
Speaker Change: My first question. Thank you.
Speaker Change: Good morning.
So I think staying with this 50-50 split gives us enough flexibility to change the priorities and be able to move quickly if opportunities present themselves. That's very helpful. I really appreciate the color and you and the team at CLPSA.
Speaker Change: You already answered your question, yes, that's the January thing.
Speaker Change: In a market that is clearly.
Speaker Change: Under supplied with Brian scrap.
Speaker Change: Why isn't a supply crunch fresh let's see.
Speaker Change: Factory in United States.
Q.
Lucas N. Pipes: Continue. Best of luck. Thanks a lot, Lucas. Appreciate it. Thank you. Our next question comes from the line of Timna Tanners with Wolf Research. Please proceed with your question. Good morning.
Speaker Change: Yes.
Speaker Change: The initiatives that are happening in the last few years.
Speaker Change: The IRR.
Speaker Change: The infrastructure view with et cetera, all these things that are going on.
On right now and it will bear fruit in the future menu factory is shrinking.
Timna Beth Tanners: I want to just clarify, if I could, some of the 2024 EBITDA colors, or sorry, the guidance that you gave about how we can use that to arrive at forecasts. So you're talking about slightly stronger volumes and I think $30 per ton of lower costs on a net basis. And then on the pricing side, obviously, we could use the futures; we could have our own forecast. But I was hoping for a little bit more color on the comment about why you think prices shouldn't go below $1,000, given the futures market well below that. So just a little more color on making sure I have those numbers right on the outlook and also your thoughts on my comment about the $1,000. Good morning, Timna.
Speaker Change: With manufacturing shrinking the generation of prime scrap is shrinking.
Speaker Change: At the same time <unk> continued to build capacity.
Speaker Change: Capacity to produce flat rolled steel is prime scrap.
Speaker Change: There is no other way to get there, particularly with many new Gulf all iron ore assets, while they can't use it enough of a metallics and artwork substitutes. So they have to use prime scrap.
So the prime scrap is shrinking because manufacturing is shrinking.
Speaker Change: Has not started to grow just yet.
Speaker Change: The demand for scrap is that.
Lorenzo: Let me start with the future. The futures are fiction, because it's done by desks that, guys that, if I show them a hot-rolled coil, a cold-rolled coil, galvanized coil, normal spindle, they still cannot differentiate one from the other, and you know that. So they can go up and down by $200, $250 per ton in a day. And they do that with absolutely no consequence.
Speaker Change: Increasing.
Speaker Change: What's the trend of the price is up so we can't have dropped like the one that was a step.
Speaker Change: Tim who will happen in January because it was just a head fake.
Speaker Change: Final numbers, we're not the initial numbers. The initial numbers were one trade is one trade that only happens here in Ohio, and we have already identified how the trade growth.
Speaker Change: So what's the solution.
Speaker Change: Just let supply and demand work, because if supply demand doesn't work and distinct diamond.
Lorenzo: So that's my opinion of you. You basically, you can use that thing as toilet paper. It's useful. That's the future, because we have a few producers of hot rolls in the country. We deal with them every day, and we buy, we sell, we transact, we produce. And we know a lot more about the future than the futures. So. Reset yourself, Tynna. Unplug yourself from the wall
Speaker Change: Time and time again this country of loss.
You cannot collude to mixed prices go into Directionally, you want you're going to have real competition youre going to have the forces of supply and demand prevail because that's what the letter of the law will support.
Speaker Change: I hope you understand.
Speaker Change: My point.
Speaker Change: Yes.
Speaker Change: That's very clear thank you.
Speaker Change: And my second question is on <unk>.
Lorenzo: Plug again. You're going to be okay with pricing going forward, and then we're not going to be talking about steel mageddons and things like that. Because I see potatoes.
Speaker Change: The surcharge or the premium. Thank you you mentioned the successful implementation.
Speaker Change: The surcharge in the contracts.
What is the volume and pool.
Lorenzo: As far as the InVisDoc guidance... $30 per ton is basically the $500 million that you're talking about. If you multiply $30 by 16.5 million tons of shipments, you get to $495. So I'm rounding up to $500.
Speaker Change: For those premiums and what is it corresponding in terms of carbon intensity.
I think you'd probably see previously mentioned of $40 premium.
Speaker Change: And I believe you will move further down in carbon intensity for UBS.
Speaker Change: So do you believe this premium could increase at a time, where it should be relatively stable in 2024. Thank you.
Lorenzo: That's the number. I got it. Okay, that's helpful. Um, yeah, the futures market is tiny. I get it. It's just something people look at. So I just wanted to ask about that. People like me need to talk like I talk to make sure that the people that look stop looking. Because if they stop looking, it's a good, good, good start, you know? And people like you help. Life would be a lot easier because you're knowledgeable.
Speaker Change: 'twenty 'twenty four it will be stable and thats the known this.
Speaker Change: Surcharge cause blips H, it's applied to all of our automotive clients at this point and some of the clients outside of automotive that have the need and the desire to get steel that is environmentally compliant it's easy for them to not only pay for what else to pass up.
Speaker Change: Long, which they haven't started yet but should be for a car for example, assuming desktop.
Lorenzo: You know that that thing sucks. You know that that thing is useless. You know that that thing is just a way for people to sell newsletters every day. It's absolutely useless.
Our car has won dogs do it would be $40 per car. So it will not be significant.
Speaker Change: Scheme of fish so.
Lorenzo: There's a lot of wealth being destroyed by the use of these things. It's about time for us as a business community to understand that it's fair to make money. But let's make money doing things that are constructive. And that thing is destructive; it's not constructive. I'm sorry I interrupted you. Go ahead, please, Timna.
Speaker Change: All of our automotive automotive contract with multiple millions of dollars or $5 million a significant number but it's not irrelevant thats why we are spending time discussing.
Speaker Change: In this call.
The next step will be when we have green hydrogen available, which we don't have today, our trials with hydrogen are being done with what we had great hydrogen and green hydrogen is good enough for us to make sure that metallurgical inside the blast furnace the hydrogen work says.
Timna Beth Tanners: No, that's okay. I'll leave it there, Lorenzo. Thanks again.
Lorenzo: Thank you. Don't forget about the resetting thing, it's serious. Thank you. Our next question comes from the line of Tristan Grasser with BNP Paribas-Xaine. Please proceed with your question. Yes, hi, good morning, and thank you for taking my questions.
Speaker Change: The reduction then Thats, what we are proving right now we have proven to ourselves that we are on the right track. We are very excited that we are on the technological right track, but what we are aiming to have as green hydrogen.
The first question is on the scrap market. In your prepared remarks, you mentioned some artificial moves in the scrap market and probably referred to the January settlement. So I would be keen to have your view on what you think happened.
Speaker Change: Have green hydrogen.
Speaker Change: Available, we're going to be at the cliffs H Max level in the meantime.
Speaker Change: Hydrogen green Green Pink wherever we can we can get our hands around that we can use to enrich natural gas we are going to start to using and when we get to a level that we can foresee that we are really reducing future issues due to the use of any type of hydrogen that is a positive.
Lorenzo: And what do you think needs to happen in the market to be what you call fair? That's my first question. Thank you. Good morning, Chris.
Lorenzo: Yeah, you already answered your own question. Yeah, that's the general thing. And I'll mark it that it's clearly... funded supplies with prime scraps. Why isn't this part of the front script?
Speaker Change: Four zero emission as we can prove the numbers to the world in our.
Lorenzo: Until the initiatives that have been happening in the last few years. The IRA, the Infrastructure Bill, etc., all these things that are going on right now and will bear fruit in the future, manufacturing is shrinking. With manufacturing shrinking, the generation of prime scrap is shrinking. At the same time, the mini-mules continue to build capacity, and capacity to produce labeled stewarded prime scrap. There's no other way to get there, particularly with many meals that don't have aromatherapy.
Speaker Change: Our sustainability report, we are going to go to the cliffs H true.
Speaker Change: Surcharges to be higher than cliffs. It. So in summary brief rationale as $40 per ton when we havent hydrogen.
Available.
Speaker Change: True.
Cool.
Speaker Change: Use hydrogen through enriched natural gas, we're going to push the issue and why do we get to green hydrogen we expect we fully expect it to be in the next.
Speaker Change: Several years ago before 2030, we're going to be a clear statement about that.
Speaker Change: They are out we are growing but we are doing this to get paid not to brag about.
Lorenzo: So they can't use enough metallics, enough substitutes, so they have to use prime scrap. So the price of scrap is shrinking because manufacturing is shrinking, it has not started to grow just yet, and the demand for scrap is increasing. What's the trend for the price? It's up.
Speaker Change: 99, 9% of the Ceos talk about environmental they have they.
Speaker Change: They just want this thing to go away when data and data don't need to talk about anymore, but they believe in what their bucket.
Speaker Change: Alright.
That's very clear thank you. Thank.
Thank you.
Speaker Change: Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Bill Peterson with Jpmorgan. Please proceed with your question.
Lorenzo: So we can't have a drop like the one that was attempted to happen in January because it was just a head fix. The final numbers were not the initial numbers. The initial numbers were one trade. It's a trade that only happens here in Ohio. And we have already identified how the trade goes. So, what's the solution? Just let supply and demand work. Because if supply and demand don't work, and this thing continues to happen time and time again, this is a country of loss. You cannot collude to make prices go in the direction you want. You've got to have real competition.
Bill Peterson: Yes, hi, good morning, and thanks for taking our questions first question I wanted to kind of come back to the fundamentals.
Your outlook. So if you think.
Bill Peterson: Curfews and the steel market as you see it given that it looks like pricing. They may have already peaked this year compared to last year, which was a little bit later in the year, maybe March April and then if you could touch on the customer inventory youre seeing relative strength and the value added steel products for HRC and specific for you as we think about the first quarter.
Bill Peterson: How should we think about the product mix given the step down in coated volumes during the fourth quarter.
Lorenzo: You've got to have the forces of supply and demand prevailing, because that's what the letter of the law will support. I hope you understand. 5 points.
Speaker Change: Yes look.
Speaker Change: Good morning, Joe.
Speaker Change: First of all.
Speaker Change: We are seeing a first quarter that is pretty stable in comparison with what were seeing last year remember last year, everybody was expecting the hardware A&D expecting the armageddon onto catastrophe.
Yes, that's very clear. Thank you. And my second question is about the surcharge or the premium.
Lorenzo: I think you mentioned the successful implementation of the surcharge in the contracts. So what is the volume involved in those premiums, and what is it corresponding to in terms of carbon intensity?
Speaker Change: Inflation will take over the world that will come to an end and all of a sudden everything was with great everything was okay and.
We are fine in terms of a soft lately.
Lorenzo: I think you previously mentioned a $40 premium. And I believe you will move further down in carbon intensity for your BFPUF. So do you believe this premium could increase with time, or should it be relatively stable in 2024? Thank you. Yeah, in 2024, it will be stable. And that's the number. The surcharge is called cliff's edge.
Speaker Change: Think that enlist last year, we're not even the strike.
Speaker Change: Donlin gold on the big three in Detroit, the Big three.
Speaker Change: <unk> common factors inventory because that was actually a good thing for us as a supplier of major supplier of automotive to the point that the government of factors were building inventories and anticipate our anticipation of the strike and therefore, when the strike was not as.
Lorenzo: It's applied to all of our automotive clients at this point, and some of the clients outside of the automotive industry that have the need and the desire to get steel that is environmentally compliant. It's easy for them to not only pay for, but also to pass along, which they haven't started yet.
Bad there as long as they were anticipating they continue to buy so we're very.
<unk> affected only at the very tail end of this strike when the strike was.
In their last day, but the biggest impact of the UAW strike was the.
Lorenzo: But should be for a car, for example, assuming that the average car has one ton of steel, it would be $40 per car. So it will not be significant in the big scheme of things. So all of our automotive contracts with multiple millions of tons, let's call 5 million tons, is a significant number. So it's not irrelevant.
Speaker Change: The behavior of the other wires, particularly the middle man, particularly the service centers and distributors that in anticipation of.
Speaker Change: Uh huh.
A disaster that they were they were expecting on on demand and prices they stopped Dubai and then when an entire sector growth.
Lorenzo: That's why we're spending time discussing this call. The next step will be when we have green hydrogen available, which we don't have today. Our trials with hydrogen are being done with what we have, gray hydrogen.
Blake.
Speaker Change: <unk>.
Speaker Change: An entire sector does not buy any more price moved up and Thats what happened last year.
We are not anticipating at this point that nothing like that will happen this year.
Lorenzo: And gray hydrogen is good enough for us to make sure that metallurgically, inside the blast furnace, hydrogen works as a reductant. And that's what we're proving right now. We are proving to ourselves that we are on the right track. We are very excited that we are on the technological right track. But what we are aiming to have is green hydrogen. And when we have green hydrogen available, we'll be at the Eclipse H-Max level. In the meantime, any hydrogen, green, gray, pink, whatever we can get our hands on that we can use to enrich natural gas, we are going to start using. And when we get to a level where we can consider that we are really reducing CO2 emissions due to the use of any type of hydrogen that is positive for CO2 emissions, and we can prove the numbers to the world in our sustainability report, we will go to the Eclipse H2 surcharge. That would be higher than Eclipse H. So, in summary, Eclipse H is now 40 moles per ton.
Speaker Change: So we are expecting at the end of the day on which voice stable a much more normal year in 2024 and Thats why we are basically speaking a flat year in terms of ship $16 $4 million last year $16 $5 million. This year no change in mix.
Yes, and as for the first quarter, how should we think about next year I'm.
Speaker Change: I am sorry.
Speaker Change: So over time.
Speaker Change: Yes, just the second part of my question was how to think about the product mix for your business in the first quarter given the step down in coated volumes in the last quarter.
Speaker Change: Yeah go ahead, Yeah, Hey, Bill itself so.
Speaker Change: Some general talking points on the first quarter in terms of mix you should see a similar mix.
Bill Peterson: In Q1 relative to Q4.
Bill Peterson: From a shipment standpoint, Q1 should be a slight increase from Q4.
Speaker Change: And then from an average selling price standpoint, you can probably plug.
Around $60 a ton.
Speaker Change: Increase.
Speaker Change: As we start to see benefit from.
Lorenzo: When we have hydrogen available enough to use hydrogen to enrich natural gas, we're going to go to Eclipse H2. And when you get to green hydrogen, we fully expect it to be in the next several years, but before 2030, we're going to be at Eclipse H-Max. But that's the route we are going down. But we are doing this to get paid, not to brag about it like 99.9% of the CEOs that talk about the environment. They just want this thing to go away one day, and they don't need to talk about it anymore. But they don't even know what they're talking about.
Lags on index pricing and things like that.
Speaker Change: And then in terms of costs.
We're going to have a big benefit from.
Speaker Change: Lower raw materials in call, but thats not going to hit until Q2.
Speaker Change: So those are kind of the general.
Speaker Change: Estimates for Q1 that you can think about.
Got it that's helpful color.
Speaker Change: And for my second question.
Speaker Change: Okay I realize your views on the NSC skills clear, but but should the deal go through and realize the current plan is to return capital to shareholders.
Speaker Change: Capital to shareholders as well as debt pay down but would you see the need to bolster your footprint or improve your technical capabilities in order to compete moving forward and if so I guess, what kind of assets with cliffs, maybe look to acquire.
All right, that's very clear. Thank you. Thank you. Thank you. As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Bill Peterson with J.P. Morgan. Please proceed with your question.
Speaker Change: Anything downstream for the electric steel something else.
Speaker Change: We don't see the need to do anything.
Speaker Change: We believe that we have a fantastic footprint, we have a fantastic position in terms of our our feedstock and our our ability to control our own destiny. So we don't see the need to do anything, but we continue to see opportunities.
Bill Peterson: First question, I wanted to kind of come back to the fundamentals and, you know, your outlook. So if we think about the current use of the steel market, as you see it, given that it looks like pricing may have already peaked this year compared to last year, which is a little bit later in the year, you know, maybe March or April. And then, you know, if you can touch on the customer inventory, you're seeing relative strength in the value-added steel products over HRC. And then specifically for you, as we think about the first quarter, what, how should we think about the product mix, you know, given the step down in coded volumes during the fourth quarter? Good morning, Bill.
Technologically we are ahead in terms of quality, we are ahead, but.
Speaker Change: Don't forget we built a new company in three years with debt and we paid the debt down to a point that nobody will anticipate.
Speaker Change: I'd like to buy a big house with a big mortgage 30 years and everybody will be happy to campaign every months for 30 years.
Lorenzo: First of all, we are seeing a first quarter that is pretty stable in comparison with what we were seeing last year. Remember, last year, everybody was expecting a hard landing, expecting Armageddon, the catastrophe, and inflation would take over, the world would come to an end. And all of a sudden, everything was great, everything was okay, and we were fine in terms of a soft landing. The other thing that influenced last year was not even the strike that the UAW called on the Big Three in Detroit, the Big Three car manufacturers in Detroit, because that was actually a good thing for us as a supplier, a major supplier of automobiles, to the point that the car manufacturers were building inventories in anticipation of the strike, and then when the strike was not as bad or as long as they were anticipating, they continued buying.
Speaker Change: And then in three years you have done you.
You paid off the market that's what we did here.
And the investors need to recognize that.
Speaker Change: When do we see a target that is completely underappreciated like we're still we're still a strain based on the cash on hand.
Everybody that someone else was believing that it could do a better job than that management team that has a sweater in there.
Speaker Change: I agree with them, that's why I made an offer to bring them to the to the to the role of companies that trade based on some type of fundamentals and not just on cash on hand.
Speaker Change: And then my first authorized a goodwill.
Speaker Change: But then things got crazy because.
Therefore did not want to sell to cliffs period full stop they would like to break the back of the U S. Therefore, they are doing less talk Turkey here.
Speaker Change: <unk> management team and their board had one goal in mind.
Lorenzo: So we were very mildly affected, only at the very tail end of the strike when the strike was in its last days. But the biggest impact of the UAW strike was the behavior of the other buyers, particularly the middlemen, particularly the service centers and distributors, who, in anticipation of a disaster that they were expecting in terms of demand and prices, they stopped buying. And then when an entire sector goes black, an entire sector does not buy anymore, prices go down. And that's what happened last year.
Speaker Change: The goal is to break the back of the magnets to workers.
Speaker Change: And by breaking the back of United Steelworkers to break the back of the annoying when realized labor in America.
Speaker Change: I am a big supporter of unionized labor because it goes against buses like Ziv reported.
Speaker Change: These type of people need to go.
Speaker Change: So that's much might take on U S steel.
Speaker Change: I need to give a more all of our debt is enough.
No no that's good and it's clear that your you have to what you have what you need to compete so I appreciate the insights here.
Speaker Change: Good luck in 2024 and the execution.
Lorenzo: We are not anticipating, Bill, at this point, that anything like that will happen this year. So, we are expecting, at the end of the day, a much more stable, much more normal year in 2024. And that's why we are basically anticipating a flat year in terms of shipment. 16.4 million tons last year, 16.5 million tons this year, no change in me. Yeah, and it's for the first quarter. How should we think about mixing your own mix?
Speaker Change: Thank you. Our next question comes from the line of Alex Hacking with Citi. Please proceed with your question.
Alexander Hacking: Yes. Good morning, Laurent that's also I just have one question.
Alexander Hacking: How are you.
Alexander Hacking: On the $30 a ton cost guidance, what volume do you realistically need to achieve that right you're guiding to 16 5 million tons could you achieve that level of cost reduction at 16 million tonnes any color there on that relationship would be helpful. Thank you.
Bill Peterson: I'm sorry, do you want to say it one more time? Yeah, just the second part of my question was how to think about the product mix for your business in the first quarter given the step down in coded volumes in the last. Hey Bill, it's Celso. Some general talking points about the first quarter.
Speaker Change: Yes, I mean, that's what we're assuming Alex Ware.
Speaker Change: Like we said we're at $16 four last year, we are going to be at 16 five this year.
That's what we need to continue to lower our costs, we've done a lot of cost reduction over the last few quarters.
Speaker Change: But theres still a little bit more to go.
In terms of mix, you should see a similar mix in Q1 relative to Q4. From a shipment standpoint, Q1 should be a slight increase from Q4. And then from an average selling price standpoint, you can probably plug around $60 a ton into the increase as we start to see, you know, benefit from, you know, lags on index pricing and things like that. And then in terms of costs, you know, we're going to have a big benefit from lower raw materials and coal, but that's not going to hit until Q2. So those are kind of the general estimates for Q1 that you can think about. That's a very helpful color.
Speaker Change:
Speaker Change: And Thats what were sticking with we're confident in achieving that.
Speaker Change: Cost reduction during the whole year, it's not necessarily going to come next.
Speaker Change: Next quarter, but its going to youre going to see that throughout the year given the volume assumptions that we have.
Speaker Change: Okay, but if volume, let's say with 16 million tonnes, and said would you be able to achieve any per ton cost reductions or we would see costs more flattish and that kind of scenario, yes. So with lower volume there are things that we could toggle, we probably have less.
Speaker Change: Less maintenance expense and things like that so that would offset the volume impact.
Speaker Change: Okay. Thanks appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is a follow up from the line of Lucas pipes with B Riley Securities. Please proceed with your question.
Bill Peterson: And for my second question, and look, I realize your views on the NFC, you know, U.S. deal are clear, but should the deal go through, and you realize the current plan is to return capital to shareholders as well as debt paid out, would you see the need to bolster your footprint or improve your technical capabilities in order to compete moving forward? And if so, I guess what kind of assets QLIFS would, you know, maybe look to acquire anything downstream for electric steel? Something else?
Lucas N. Pipes: Thank you very much operator, thank you very much for taking my follow up question I wanted to ask first on the on the fixed pricing and how that.
Lucas N. Pipes: So it was shaping up for the January contracts kind of on a year on year basis, and then also if you could share any expectation for the April tranche. Thank you very much.
Lucas N. Pipes: Yes.
Lucas N. Pipes: The last price increase we are transacting.
Lucas N. Pipes: Level of debt throughout and elsewhere, you some case and the overall market is still below so it's a mixed bag. So we always.
Lorenzo: Look, we don't see the need to do anything. We believe that we have a fantastic footprint. We have a fantastic position in terms of our feedstock and our ability to control our own destiny. So we don't see the need to do anything. But we continue to be able to see opportunities. Technologically, we are ahead.
Lucas N. Pipes: Try one more on do we realize that the market has.
Lucas N. Pipes: Reached a point that we are not going to be able to push anymore, we like higher prices.
Lucas N. Pipes: Divesting for our our companies divesting for our employees the best thing for our shareholders. So that's why we pushed prices up.
Go into we can't go into more on the other hand, we don't see any reason for price to get rid of HRC prices due to lower cost in this marketplace.
Lorenzo: In terms of quality, we are ahead. But don't forget, we built a steel company in three years with debt, and we paid the debt down to a point that nobody would anticipate. It's like buying a big house with a big mortgage, 30 years, and everybody would be happy to keep paying every month for 30 years, and then in three years, you're done. You paid off the market.
Lucas N. Pipes: It's very important with all the fundamentals being you go around the around the around and come back to one thing scrap so where do I have already discussed the scrap enough. So 1000 boes per ton is a good floor and I wouldn't say that at this point there 1100 <unk>.
Lorenzo: That's what we did here, and investors need to recognize that. When we see a target that is completely underappreciated, like West Steel, it is trading based on the cash on hand. Everybody, including investors, was believing that they could do a better job than that management team that is squandering there.
Lucas N. Pipes: My talk so thats the range that I expect to transact as far as HRC going forward as far as the automotive.
Lucas N. Pipes: Our block.
Is that mostly in April.
Lucas N. Pipes: Biggest.
Lucas N. Pipes: Clients on their blocks Toyota.
Lorenzo: And I agree with them. That's why I made an offer to bring them into the role of companies that trade based on some type of fundamentals and not just on cash on hand. And that, my first offer, was a good one. But then things got crazy because that board did not want to sell to Cliffs, period, full stock. They would like to break the back of the union. That's what they are doing. Let's talk about Turkey here.
Lucas N. Pipes: On April one.
Lucas N. Pipes: For us and we have a great relationship with Toyota.
Lucas N. Pipes: They are our largest client and local board of at this point.
Lucas N. Pipes: Decent margin I guess.
That we used to be called victory.
Lucas N. Pipes: They're still big but.
Lucas N. Pipes: The other is bigger than that.
Lucas N. Pipes: Think about the other will continue to develop.
Lucas N. Pipes: Hi, this sophisticated specs with Toyota, particularly at this pointing more oriented electrical steels that because we really produce more oriented electrical steel. We don't just say that we are producing oriented electrical steels and we never sued.
Lorenzo: That management team and that board had one goal in mind. And the goal was to break the back of the United Steelworkers. And by breaking the back of the United States workers, to break the back of unionized labor in America. I am a big supporter of unionized labor because it goes against bosses like Dave Burrage. These types of people need to go.
Lucas N. Pipes: Nippon steel.
Lucas N. Pipes: In Japan.
Lucas N. Pipes: Nippon Steel short order for to get a price increase we're getting price increases without shui our clients. So if thats the technology that they would like to briefly the United States, We don't need that technology will help relationship to work.
Lorenzo: So that's my take on U.S. Steel. Do I need to give you more water, or is that enough? No, no, that's good. And it's clear that, you know, you have what you take; you have what you need to compete. So I appreciate the insights here. And, you know, good luck in 2024 and execution ahead.
Speaker Change: Thank you very much.
And in light of the strong volume guidance, what's what's a good ratio to use for kind of fixed pricing versus.
Speaker Change: More spot exposed.
Speaker Change: 50, 50 is a good number we are probably in the $45 55 close to the 50 50 or going to a social is any more color on that no I think that's a good way to think about it.
Bill Peterson: Thank you. Our next question comes from the line of Alex Hacking with Citi. Please proceed with your question. Yeah, morning, Lorenzo. So I just have one question. Hey, how are you?
Thank you then.
Back to the market dynamics and I appreciate the points on the on the scrap side when when I do the math on.
Alexander Hacking: On the $30 a ton cost guidance, what volume do you realistically need to achieve that? All right, you're guiding to 16 and a half million tons. Could you achieve that level of cost reduction at 16 million tons? Any color on that relationship would be helpful.
Speaker Change: Imported steel into the USA I arrive at it kind of landed price of $11 50, which is obviously higher than.
Speaker Change: For our U S HRC as quoted by the nature.
Thank you. Yeah, I mean, that's what we're assuming, Alex. We're, like we said, you know, we're at 16.4. Last year. We're going to be at 16 and a half this year.
Speaker Change: Publishing houses how do you square that.
How would you frame up the competition from imports today. Thank you.
That's why we need to continue to lower our costs. We've done a lot of cost reduction over the last few quarters, but there's still a little bit more to go.
Speaker Change: I'm sorry.
Speaker Change: Not sure if I understood your question Lucas.
Speaker Change: When I do the math I arrive at that.
Speaker Change: Import price. So if you if you if someone were to buy steel from abroad today, it's at a price that's.
And that's what we're sticking with. We're confident in achieving that cost reduction during the whole year. It's not necessarily going to come, you know, next quarter, but you're going to see that throughout the year given the volume assumptions that we have. Okay, but if volume, let's say, was 16 million tons instead, would you be able to achieve any per ton cost reductions, or would you see costs more flattish in that kind of scenario? Yeah, so with lower volume, you know, there are things that we could toggle.
Speaker Change: Higher than where I see the U S HRC price.
Speaker Change: And that.
Speaker Change: That that on the surface.
Speaker Change: It makes little sense, given the import requirements given that the U S is still short steel. So I wonder if you have a view on that and we're in.
Speaker Change: Imports currently kind of factor into the price discovery, yes. The biggest thing when you were talking about steel.
Speaker Change: Steel coming from abroad.
First of all is to go from a broad as Brian largest steel coming from <unk>.
Alexander Hacking: We'd probably have, you know, less maintenance expenses and things like that, so that would offset the volume impact. Okay, thanks. I appreciate it. No problem, thank you.
Speaker Change: Blast furnace.
Speaker Change: Integrated pedicle screws.
Speaker Change: Meaning new thing all existing volume and importance in the United States. So when you talk about rig.
Speaker Change: Producers of steel that are able to export competitiveness for China, or Korea, or Japan or Europe.
Lucas N. Pipes: Thank you. Our next question is a follow-up from the line of Lucas Pipes with B Reilly Securities. Please proceed with your question.
Speaker Change: Our super influenced by the price of iron ore.
Lucas N. Pipes: Thank you very much, operator. Thank you very much for taking my follow-up question. I wanted to ask first about fixed pricing and how that is shaping up for the January contracts, kind of on a year-on-year basis, and then also if you could share any expectations for the April tranche. Thank you very much. Yeah, with the last price increase, we are transacting at the level that we announced for in some cases, and the overall market is still below. So it's a mixed bag.
Speaker Change: The old <unk> that you used to discuss a lot in this call.
Speaker Change: A few years ago is now above 130 books I remember one of my last call as when iron ore was important.
Speaker Change: Important for us as I said I was actually.
Should trade no lower than 130, something like that that's exactly what several years later, that's exactly where we are so I'm, making the same prediction for hospitals quite up to date.
And we continue to be very attentive to the trade laws of the United States.
Speaker Change: Enforcement of the trade laws of the United States, because when things don't go the way I have just described the reason is very simple is done.
Lorenzo: So we always try one more until we realize that the market has reached a point that we are not going to be able to push anymore. We like higher prices. That's the best thing for our companies, the best thing for our employees, the best thing for our shareholders. So that's why we push prices up. We go until we can't go anymore.
Speaker Change: And the biggest problem of heavy foreign ownership in the United States is that Newport.
Speaker Change: The.
You will put their box to take care of the house.
And then im going to have a domestic player.
Speaker Change: That will say no I don't think that there is a problem here.
Speaker Change: And he is a domestic player. So we cannot allow that to happen because that would be.
Lorenzo: On the other hand, we don't see any reason for prices to be lower, prices to be below $1,000 in this marketplace at this very point, with all the fundamentals being you go around and around and around, and you come back to one thing, scrap. So I have already discussed scrap enough. So $1,000 per ton is a good floor, and I would say that at this point, $1,150 is my top.
Weakening the trade laws for the insight if you can't enforce having the trade laws doesn't work.
Speaker Change: So thats one of these things why were so protected in terms of our supply chain in our national security because of course, it's not in the best interest of the country to give away control Overdid things, particularly steel production in times of war or pre war, that's who we are.
Speaker Change: I mean right now.
Speaker Change: Lawrence I really appreciate the color.
Lorenzo: So that's the range that I expect prices to transact as far as HRC is concerned going forward. As far as the Autoborov block that goes on sale in April, the biggest client on that block is Toyota. Toyota is on April 1st for us, and we have a great relationship with Toyota. They are our largest client in Autoborov at this point, by a decent margin against the other that we used to call the Big Three. They are still big, but Toyota is bigger.
Speaker Change: <unk> team best of luck.
Lawrence: Thank you Lucas.
Speaker Change: Thank you that concludes our question and answer session I will turn the floor back to Mr. Consensus for final comments.
Thank you very much for participating in the call today great questions.
Consensus: We believe that the saga is not over but for us.
Consensus: We are going to continue to play as we go.
In the next 24 hours a day the window for us will be open.
Mr. Consensus: And Youll make no mistake my priority at this point is buying back my shares because my shares are on sale.
Lorenzo: And the good thing about Toyota, we continue to develop highly sophisticated specifications with Toyota, particularly at this point in no-oriented electrical steels because we really produce no-oriented electrical steels. We don't just say that we are producing no-oriented electrical steels. And we never sued Toyota like Nippon Steel just did in Japan. Uh, Niposil sued Toyota to get a price increase.
Mr. Consensus: And I would like to buy things on sale.
Speaker Change: Thank you very much have a great day.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
Lorenzo: We're getting price increases without suing our clients. So, if that's the technology that they would like to bring to the United States, we don't need that technology. We know how relationships work.
Lorenzo: Thank you very much. And in light of the strong volume guidance, what's a good ratio to use for kind of fixed pricing versus more spot exposed? Thank you. 50-50 is a good number. We are probably in the 45-55, so we're close to 50-50. I don't know if Celso has any more color on that.
Lucas N. Pipes: No, I think that yeah, that's a good way to think about it. Thank you, and then going back to the market dynamics, I appreciate the points on the scrap side. When I do the math on... imported steel into the U.S., I arrive at a kind of landed price of $1,150,000, which is obviously higher than where U.S. HRC is quoted by the major publishing houses.
Lorenzo: How do you square that, or how would you frame up the competition from imports today? Thank you. I'm sorry; I'm not sure if I understood your question, Lucas.
Lorenzo: When I do the math, I arrive at an import price. So if someone were to buy steel from abroad today, it's at a price that's higher than where I see the US HRC price. And that, on the surface, makes little sense given the import requirement, given that the U.S. is still short steel. So I wondered if you have a view on that and where imports currently kind of factor into the price discovery. First of all, it's still coming from abroad; by and large, it's still coming from Blast Furnace, BOF, Integrated Topical. The mini-mutants only exist in volume and in importance in the United States.
Lorenzo: So, when you talk about big producers of steel that are able to export, no matter if it's from China or Korea or Japan or Europe, they are super influenced by the price of iron ore. So, the old IODEX that we used to discuss a lot on these calls a few years ago is now above $130. I remember one of my last calls when iron ore was still important. For us, I said, IODEX should trade no lower than $130, something like that. Bingo. That's exactly where we are, several years later. So, I'm making the same prediction for what happened with coil today. And we continue to be very attentive to the trade laws of the United States and the enforcement of the trade laws of the United States. Because when things don't go the way I have just described, the reason is very simple. It's a dummy.
Lorenzo: And the biggest problem of having foreign ownership in the United States is that you put the, the, the, you put the fox in charge of the hen house. And then we're going to have a domestic player that will say, no, I don't think that there's a problem here. And he's a domestic player.
Lorenzo: So we cannot allow that to happen because that would be weakening the trade laws from the inside. If you can't enforce it, having trade laws doesn't work. So that's one of the things why we are so protected, in terms of our supply chain and our national security. Because, of course, it's not in the best interest of the country to give away control over these things, particularly steel production, in times of war or pre-war that we are in right now.
Lorenzo: Lorenzo, I really appreciate the color. Again, to you and your team, best. Thank you, Lucas. Thank you. That concludes our question and answer session. I'll turn the floor back to Mr. Goncalves for a final comment. Thank you very much for participating in the call today. Great questions.
Lorenzo: We believe that the saga is not over, but for us, we are going to continue to play as we go. In the next 24 hours, the window for us will be open, and make no mistake; my priority at this point is buying back my shares because my shares are on sale. And I like to buy things on sale.
Lorenzo: Thank you very much, and have a great day. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.