Q4 2024 Cleveland-Cliffs Inc Earnings Call
Good morning, Ladies and gentlemen, my name is Kevin and I'm Your conference facilitator today.
I'd like to welcome everyone to Cleveland cliffs full year and fourth quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question 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 Securities 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 risk 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 F. C C, which are available on the company website.
Today's conference call is also available and being broadcast at Cleveland cliffs Dot com.
At the conclusion of the call 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.
Speaker Change: At this time I'd like to introduce Lorenzo Goncalves, Chairman, President and Chief Executive Officer. Please go ahead Sir.
Lorenzo Goncalves: Thank you, Kevin and good morning, everyone.
Lorenzo Goncalves: 2024 is in the rearview mirror.
Lorenzo Goncalves: And we have great potential for a strong 2025 right in front of us.
Lorenzo Goncalves: Our order book has picked up substantially over the past months.
Lorenzo Goncalves: And as to pricing is back on the rise.
Lorenzo Goncalves: Less than a month ago.
Lorenzo Goncalves: Our lead times for hot rolled steel we're three weeks.
Lorenzo Goncalves: As of today.
Speaker Change: Our seven weeks.
Lorenzo Goncalves: Order book and lead times.
Lorenzo Goncalves: Are our most important forward looking indicators and they are both in their strongest position in nearly a year.
Lorenzo Goncalves: In 2020 for demand for steel was the weakest we have seen since 2010 odd.
Lorenzo Goncalves: Other than during the temporary collapsed caused by COVID-19 in early 2020.
Lorenzo Goncalves: The second half of last year was especially bad with the steel demand from the automotive sector is slowing down.
Lorenzo Goncalves: Construction activity lagging and industrial production, taking a hit.
Lorenzo Goncalves: This led to the idle or flower Skus six blast furnace at Cleveland works last quarter.
Lorenzo Goncalves: A lot of this weak demand environment was a function of natural market factors at play.
Lorenzo Goncalves: Among these factors interest rates kept at very high levels by the Federal reserve negatively impacted our service center customers ability to buy steel front us.
Lorenzo Goncalves: Yeah.
Lorenzo Goncalves: And of course trade distortions enabled by foreign countries supporting steel production continued to be a major problem.
Lorenzo Goncalves: Regarding treat the steel industry has been dealing we don't fear competition from foreign producers for decades.
We have always been very vocal in calling out each one of the problems, particularly did dumping of artificially cheap steel into the U S market subsidies that foreign governments handout with the bad debt to steel producers.
Lorenzo Goncalves: Currency manipulation.
Lorenzo Goncalves: Weak environmental regulations or lack of enforcement.
Lorenzo Goncalves: And insufficient or no existing.
Lorenzo Goncalves: Punish punishment for bad actors, who manipulate the global market.
Lorenzo Goncalves: With the Trump administration, an office action is being taken.
Lorenzo Goncalves: And we are starting to see positive signs ahead of us.
Lorenzo Goncalves: We at Cleveland Cliffs I appreciate the recently announced 25% tariffs on steel imports from all countries.
Lorenzo Goncalves: These tariffs are critical to addressing the problem and we think the Trump administration.
Lorenzo Goncalves: Have the courage to implement these tariffs.
Lorenzo Goncalves: Yeah.
Speaker Change: Why are the United States continues to be in a net short position on steel the biggest exporters of steel into the U S are all guilty of overcapacity and over production.
Lorenzo Goncalves: To make matters worse.
Lorenzo Goncalves: This foreign Overproducers off steel are all more carbon intensive than each one of the U S is still makers, meaning that they overproduce steel and C O two.
Lorenzo Goncalves: And then what the steel on a vessel that image even more to.
Cleveland cliffs is not dependent on import imported inputs and who do not rely on foreign supply chains that can be disrupted overnight.
Lorenzo Goncalves: The tariffs will penalize their foreign competitors, who have been playing by a different set of rules why it was strengthening domestic producers, who actually invest in American workers American manufacturing in America supply Chase.
Lorenzo Goncalves: The trade the angle.
Lorenzo Goncalves: It's just important for steel, but for finished goods as well.
Lorenzo Goncalves: For the first time in history 2024 was the year when sales of imported cars in the United States.
Lorenzo Goncalves: Surpassed sales domestically made vehicles.
Lorenzo Goncalves: Let me repeat this 0.1 more time.
Lorenzo Goncalves: In 2024, the number of imported car sold to consumers was higher than the number of domestic produced the cars sold in the United States.
Lorenzo Goncalves: That is exactly why tariffs and a strong industrial policy are necessary.
Lorenzo Goncalves: Protect and his strengths the American manufacturing base instead of letting it continued to erode.
Lorenzo Goncalves: We also appreciate that the recent tariff announcement includes downstream products containing steel and that should benefit our clients in automotive any other sectors.
Lorenzo Goncalves: The tariffs we also benefit our newly acquired the Stelco, that's right. Despite what some might assume the best financial year for us telco in the previous decade was 2018.
Lorenzo Goncalves: 25% tariffs on Canadian it's do imports were in place.
Lorenzo Goncalves: <unk> sells more than half of adult wood in Canada and.
Lorenzo Goncalves: And we compete with other Canadian suppliers, who send their material into the United States.
Lorenzo Goncalves: The Canadian steel market pricing reflect the U S market pricing, so any resulting rise in pricing will flow directly to stelco as well on top of the benefit we're seeing from the weakening Canadian dollar.
Lorenzo Goncalves: It has now been nearly four months of our ownership of stelco.
Lorenzo Goncalves: I will remind everyone that our acquisition process and review by the Doj.
Lorenzo Goncalves: Went through seamlessly.
Lorenzo Goncalves: The operational transition has been smooth.
Lorenzo Goncalves: Lake Erie works remains best in class for our cost structure standpoint.
Lorenzo Goncalves: A large portion of our expected synergies have already been set in motion and we are identifying more ways to maximize value from the combination.
Lorenzo Goncalves: The Best example is directing order flow to maximize all of our music strengths. This means we can load leak you agree with the grades they make best in transitioning some of their more sophisticated grades and orders to our U S meals.
Lorenzo Goncalves: The van who have found here.
Lorenzo Goncalves: We will likely represent most of the remaining synergies.
Lorenzo Goncalves: We expect to have the $120 million. These synergies set in motion before the end of this year.
Lorenzo Goncalves: As for the current state of play at cliffs in General we continue to manage cost well.
Lorenzo Goncalves: Mine operations and maintain our financial flexibility.
Lorenzo Goncalves: We have been through cycles before.
Lorenzo Goncalves: We know exactly what to do.
Lorenzo Goncalves: We continue to enjoy full support for our investors and we proved that once again with our recently issued senior unsecured notes.
Lorenzo Goncalves: Deal that was oversubscribed and was priced in a few hours after launching.
Lorenzo Goncalves: Yeah.
Lorenzo Goncalves: And as we have already explained the market is certainly pointing in our favor.
Lorenzo Goncalves: The first step is the tightening of the scrap market, we have been saying for years that the continued push toward your apps would force the scrap prices higher.
Lorenzo Goncalves: That's exactly what's happening now.
Lorenzo Goncalves: Brian scrap supply is in elastic and demand keeps growing.
Lorenzo Goncalves: In just two months, we have seen prime prices move up $70 per restaurant.
Meanwhile, Gleevec cliffs is C T exactly why we need to be.
Lorenzo Goncalves: Our iron ore based operations give us cost stability quality consistency and supply security.
Lorenzo Goncalves: This is a long term advantage that we will only get stronger over time.
Lorenzo Goncalves: Our order book is in a much stronger position to start 2025 with a significant uptick in demand.
Lorenzo Goncalves: The improvement in automotive have been especially encouraging with increased volumes from both existing and new programs.
Lorenzo Goncalves: We are seeing our best full rates since early last year, a clear sign that we are recovering market share from their competitors that gave away Bryce.
Lorenzo Goncalves: These competitors cant win on quality or service. So they gave away the farm on pricing and are now struggling to deliver on performance.
Lorenzo Goncalves: No matter how much competition tries to lowball pricing, there's market quality and delivered performance always win in the long term.
Lorenzo Goncalves: This positive trend combined with better demand in other core segments puts us in a great position for the year ahead.
Lorenzo Goncalves: After spending the entire second half of 2020 for weed sub $700 HRC pricing. We are finally, starting to see the long overdue boss Andy.
Lorenzo Goncalves: Andrew It now even better equipped to ride. These upsides then before we'd just delco and it's primarily no automotive book of business and the mix, resulting in a smaller percentage of fixed price contracts for our total Cleveland cliffs business as a whole.
Lorenzo Goncalves: Now, let's not forget about safety, we had an outstanding safety record in 2024 and that is the direct result of our great relationship with our workforce.
Lorenzo Goncalves: We take safety seriously and the unions do too.
Lorenzo Goncalves: We reported our full year 2024, total reportable incident rate or number of injuries per 200000 hours worked it at 0.9.
Lorenzo Goncalves: And unlike some other companies in this industry, we count everyone inside our fence line.
Employees contractors everyone.
Lorenzo Goncalves: Finally, before turning it over to sell so to go through our financial results.
Lorenzo Goncalves: I will quickly address a topic I'm sure. Many of you want to hear about.
Lorenzo Goncalves: Given the ongoing litigation, we will not be taking questions regarding U S fewer Nippon steel today.
Lorenzo Goncalves: But our position is well known and our conviction has never changed.
Lorenzo Goncalves: We have been steadfast in our opinion that U S steels that announced sale to Nippon steel would never close.
Lorenzo Goncalves: I said that in December 2023, then.
Lorenzo Goncalves: 2024, and I'm repeating that in 2025.
Lorenzo Goncalves: Just go back to our conference call transcripts and public statements and you'll see that we have been correctly predicting this outcome for over a year.
Lorenzo Goncalves: The reality is that did deal has been blocked by United States of America on cereals National security concerns that cannot be mitigated.
Speaker Change: The Cepheus Committee rightfully recognize disease, and specifically noted that allow in Nepal steel a company fully financed by the Japanese banking system and they are near zero interest rates to become a major domestic player in the U S would negatively impact.
Speaker Change: The future of the entire American steel industry and that would affect multiple states of the union in the Midwest and beyond.
Speaker Change: President Trump has said a number of times that Nippon steel is an acceptable and unacceptable.
Speaker Change: Acceptable buyer for a majority stake in new West Ya.
Speaker Change: That said no situations, so bad that it cannot become a lot worse.
Speaker Change: For Nippon Steel, it's time to go before their epic M&A disaster becomes a serious diplomatic issue.
Speaker Change: Yes, President Trump's SaaS.
Speaker Change: Let's see what happens.
Speaker Change: With that I'll turn the call over to yourself.
Speaker Change: Good morning, everyone.
Speaker Change: Moving onto our results for Q4 and full year 2024, our financial performance last year, and particularly in the fourth quarter reflected the difficult market conditions that Lorenzo described for.
Speaker Change: For the fourth quarter, we posted an $81 million adjusted EBITDA loss, which was primarily the result of weaker automotive demand and the impact of lagged pricing.
Speaker Change: Direct shipments to automotive in the fourth quarter, where our lowest since the pandemic and commodity pricing for the last six months of 2024 was the lowest six months stretch since 2020.
Speaker Change: Given that over 90% of our shipments are impacted by either automotive pool rates or commodity steel pricing. These multi year lows drove a negative impact in Q4.
Speaker Change: Fortunately both of these situations have already begun to improve here into 2025 compared to 2024, just like things improved quickly in 2021 relative to 2020, a few years ago.
Lorenzo Goncalves: As Lorenzo detailed the automotive order book has been remarkably healthy to start 2025 due in large part to market share recovery and commodity steel price prices rapidly on the rise as.
Lorenzo Goncalves: As a result, we view the fourth quarter of 2024 as the trough in our quarterly profitability as we gear up for a much improved 2025.
Lorenzo Goncalves: To be clear with the inclusion of stelco for every hundred dollar increase in the HRC price on an annual basis, our yearly revenue would increase roughly $1 billion, all things equal and after factoring in changes in profit sharing and historical scrap correlations this $1 billion impact would largely flow.
Lorenzo Goncalves: Correctly down to EBITDA.
Lorenzo Goncalves: So if you hold all things equal and look to the HRC curve right. Now for 2025, you can pretty easily calculate a vastly improved adjusted EBITDA and cash flow for 2025, especially after adding another $2 6 million tonnes from our Canadian operations.
Lorenzo Goncalves: Total shipments in Q4 were $3 8 million tons, which was lower than Q3 due to the continued idling of the <unk> furnace seasonally weaker demand and only having stelco for two months of the quarter.
Lorenzo Goncalves: So the C. Six furnace remains idled, our Q1 shipment level should improve back above the 4 million tonne Mark again due to improved demand better utilizations at our U S Mills and having still go for a full quarter.
Lorenzo Goncalves: Q4 price realization of $976 per net ton looked like a sharp fall of $70 per net ton from the previous quarter, but this was mostly driven by the incorporation of stelco and their lower price mix.
Lorenzo Goncalves: The inclusion of stelco into our results, obviously helped lower our weighted average unit costs with a reduction of roughly $15 per net ton compared to the prior quarter.
Lorenzo Goncalves: Even though we weren't operating at full capacity with the <unk> six furnace down we continue to reduce cost across the board.
Lorenzo Goncalves: At this time last year, we guided that our unit steel cost would be down $30 per ton year over year. This is exactly what we accomplished even in the face of all the headwinds we saw in 2024.
Lorenzo Goncalves: Now with stelco into mix, we expect our average cost to decline another $40 per net ton in 2025.
Lorenzo Goncalves: The cost advantage its telco was well documented in the recent weakening of the Canadian dollar has only fortified that advantage even further.
Lorenzo Goncalves: It's not just on the operational side either looking at our SG&A for 2024, we were down nearly $100 million or 16% from the prior year due primarily to lower incentive compensation.
Lorenzo Goncalves: From a balance sheet perspective, we remain in a remarkably healthy liquidity position following our latest capital raise where we replaced secure ABL borrowings with long term unsecured notes.
As of today, we sit here with $3 billion in liquidity and all of our secured debt capacity remains intact.
Lorenzo Goncalves: Following the acquisition and the cash use in the fourth quarter, our leverage sits above our two five times target on a net debt to EBITDA basis.
Lorenzo Goncalves: And as we have done historically that pivots us directly into debt reduction mode.
Lorenzo Goncalves: If you look at cliffs recent history, we have a proven track record of levering up to make strategic acquisitions and subsequently paying down debt quickly.
Lorenzo Goncalves: AK steel a M USA and then F. P. T. It was the same story each time it'll be the same story with stelco, we will use 100% of our free cash flow going forward towards debt reduction until that target is reached.
Lorenzo Goncalves: The hurdle is not even quite high as high this time, either compared to where we stood after completing the 8-K and am USA acquisition, our leverage is actually already in much better position.
Lorenzo Goncalves: On top of that at the time of those acquisitions, our net pension and <unk> liabilities were north of $4 billion.
Lorenzo Goncalves: Those liabilities have been nearly eliminated down by 90% from over $4 billion down to only $400 million as of the end of 2024.
Lorenzo Goncalves: Q4 was a rather heavy period of cash use both from the weak results as well as the buildup of inventory and the release of payables. This inventory build in Q4 is primarily a result of raw materials, particularly iron ore pellets.
Lorenzo Goncalves: The situation that we will be able to rectify here in 2025.
This builds sets us up well to rapidly respond to the improved demand we are seeing thus far this year.
Lorenzo Goncalves: We will also have much lower capital expenditures in 2025 on a pro forma basis, particularly from a sustaining standpoint as we have completed our major a reinvestment cycle.
Speaker Change: Fortunately as a single mill operation the stelco assets, we're very well capitalized and we do not have any catch up capex requirements. Like we did following the a M U S ex acquisition for example.
Speaker Change: Our total Capex is expected to be $700 million in 2025 compared to $800 million in 2024. When you include Stockholm.
Speaker Change: 2024 represented a cyclical world that we all know is a steel company I believe in the midst of our weakening results with our focus on cost control and our strategic M&A with stelco, we positioned ourselves very well for a significantly improved 2025, especially as the wider market improves.
Lorenzo Goncalves: I'll now turn the call back over to Lorenzo for his closing statement.
Speaker Change: Thank you. She also with the 2024 behind those who are ready to reap the benefits of this new era in America are focused on manufacturing within the United States finally, extending up to unfair competition.
Speaker Change: Not allowing ourselves to be taking advantage off.
Speaker Change: These efforts are already showing up in our order book and our pricing.
The Golden age of American manufacturing is coming in.
Speaker Change: In Cleveland Cliffs, a proud American owned and operated the steel company producing steel from vision of Iron from Michigan, and Minnesota is at the foundation of this effort ready to support domestic manufacturing and American prosperity.
Speaker Change: With that I'll turn it to the operator for Q&A.
Speaker Change: Kevin.
Speaker Change: Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Speaker Change: A.
Speaker Change: Asia tone will indicate your line is in the question queue. You May press star two if he'd like to remove your question from a Q1 moment. Please while we poll for questions. Our first question is coming from Martin Englert from Seaport Research partners. Your line is that lives.
Martin Englert: Hello, Good morning, everyone.
Speaker Change: Yeah.
Speaker Change: I appreciate the time next week the U S. Maybe move forward with 25% of import tariffs with Canada and Mexico.
Speaker Change: In addition to.
Speaker Change: R&D per student I believe.
Speaker Change: Can you discuss how close to navigate the evolving.
Speaker Change: Its implications on prices and demand.
Speaker Change: As for the recently acquired Selco.
Speaker Change: Is there an option to move slabs, rather than finished steel firms don't go into the U S.
Speaker Change: Yeah look it's still for us.
Speaker Change: As ballpark of the entire picture.
Speaker Change: And the entire big true benefit extremely well from whatever scenario you design Marty as far as tariffs.
Speaker Change: Tariffs are necessary tariffs are at the foundation of what President Trump and Secretary of Commerce, Howard Lutnick planning to implement in this country and.
Speaker Change: We fully support that.
Speaker Change: That said, it's still collect we explained during our prepared remarks is telco.
Speaker Change: Primarily book of business is in Canada, and we believe that by using our assets.
Speaker Change: It's also the board too.
Speaker Change: To execute on orders that are coming for our American clients will largely mitigate the negative impact of tariffs on still cool.
Speaker Change: So we long story short, we believe that any small negative impact on on still if any which I still don't believe that they will be.
Speaker Change: That would be the case will be oh, largely offset.
Speaker Change: And so best buy the benefits to the rest of the footprint.
A lot a lot bigger then you're still cool individually.
Speaker Change: Another point that I'd like to one more time call attention to your attention and are there potential for investors.
Speaker Change: First year, Forbes telco, whereas 2018 and that was.
Speaker Change: Just after when President Trump and his first mandate implemented tariffs. So we fully expect that that will be the case again.
Speaker Change: This is going back a ways.
Speaker Change: Thinking about just the mechanics of reporting with tariffs in place in stelco and adjusted EBITDA.
Speaker Change: Would you plan to report tariffs included or excluded from adjusted EBITDA.
Lorenzo Goncalves: We're gonna have always reported our results as they are and we don't do not even know how to do what you have just suggested Gary it was not even part of a line of thought.
Lorenzo Goncalves: Okay, just double checking I appreciate that if I could one more.
Lorenzo Goncalves: Go ahead, the contracts on fixed contracts for flat rolled products, how did pricing change for the January resets and just updated sensitivity for steelmaking gas.
Lorenzo Goncalves: Taking into account those contract resets the inclusion of alcohol relative to changes in U S spot market prices.
Lorenzo Goncalves: Yeah, he's stuck with does not participate on that because the book of business.
Lorenzo Goncalves: Basically spot I would say is spot.
Lorenzo Goncalves: We don't have any contracts to speak off in stock, which is all spot and Thats a great thing in the current pricing environment.
Lorenzo Goncalves: So for the rest of cliffs.
Lorenzo Goncalves: The fixed contracts are doing it.
Lorenzo Goncalves: She started going extremely well.
Lorenzo Goncalves: Extremely well among other things because we had a very unusual 2024.
Lorenzo Goncalves: H a domestic to domestic competitors.
Lorenzo Goncalves: Uh huh.
Lorenzo Goncalves: Guided to really bump from the insight and in some situations, we elected to not play there.
Lorenzo Goncalves: That game and one of ours, then big clients.
Lorenzo Goncalves: Became extremely weak and they are no longer a major player.
Lorenzo Goncalves: Not only because of us, but because of other things so, but we helped them become weaker.
Lorenzo Goncalves: Even this clients coming back everybody else is coming back and coming back quickly. So the scenario is the <unk>.
Lorenzo Goncalves: Exactly opposite of what we had in 2024, when they had a low price high.
Lorenzo Goncalves: Fueling everything at this point the reality is sinking in and nothing like having a government that is committed to bring manufacturing back within the borders of the United States, So everybody's going to get the.
Lorenzo Goncalves: The domestic supplier in the domestic suppliers Cleveland cliffs.
Speaker Change: Okay I appreciate all the color and good luck in the Q here. Thank you.
Lorenzo Goncalves: Sure.
Speaker Change: Thank you next question is coming from Nick trials from B Riley. Your line is now live.
Speaker Change: Thank you operator, and good morning, everyone Orange on South So I appreciate all the background on your previous debt Paydown was curious that if we were to see the equity remained under pressure you might consider pausing paydown for any share repurchases and then my second question was do you have a target level of net debt and <unk>.
Speaker Change: Thank you very much.
Speaker Change: Well first of all congrats on your promotion.
Lucas: I will Miss Lucas pipes.
Lucas: But I know that Lucas went to a place that I'm sure that he will become a big shareholder of Cleveland cliffs. So that's a great thing for Lucas and I'm sure. There will be a great thing for B Riley and I hope it will be great for you as well Nick.
Lucas: As far as that let me start from the targets I think social mission that we are maintaining our target of two point times EBITDA.
Lucas: EBITDA as our target and.
Lucas: Well sure, but it was so much higher right now while we have much more than when we after we acquired Arcelormittal USA. For example, so we knew how to do a distinct M&A is not four for tourists and my niece, where they're ones that understand how to do M&A.
Lucas: Timing how to execute enduring the backlash of having a a couple of quarters like the Q4 that you saw we know what youre doing we prepared in Q4 to a great 2025. So we are expecting a completely different a year and we are enduring their bedroom.
Lucas: Results.
Lucas: Emerge from that point.
Lucas: As far as buying back stock.
Lucas: The answer is a resounding no.
Lucas: At this point Theres, absolutely no other things that are going to do except paying down debt paying down debt is the the.
Lucas: Do you think that will continue to build the value of our equity.
Lucas: So the answer is no.
Lucas: Yeah.
Lucas: Yeah.
Lucas: So that's good to hear and I really appreciate the kind comments I'm sure Lucas would stay the same.
My My next question was.
Lucas: I'm curious, how we should think about volume cadence over the course of the year and how much of your cost guidance could be predicated on greater fixed cost absorption.
Lucas: Versus lower raw material costs.
Speaker Change: Yeah, I'll, let social answer that one please.
Lucas: Yeah.
Speaker Change: Yeah, Hey, Nik just to Echo Lorenzo comments congrats again.
Lucas:
Speaker Change: So as we look toward the.
Speaker Change: The rest of 2025 and I want to actually address a question that Martin had asked previously as it relates to Asps is that I don't think we fully answered.
Speaker Change:
Lorenzo Goncalves: Following the acquisition of Stelco, we're gonna have a smaller percentage of our volume under fixed prices. So as we look toward the rest of this year are only about 30% to 35%.
Speaker Change: <unk> of our volumes are under fixed.
Speaker Change: <unk> pricing and then you have about 20% on a CRE a month's lag call it 10% on a on a two month lag for slabs.
Speaker Change: And 5% on a quarter lag. So I just wanted to make sure that was addressed as well and then from a cost standpoint.
Speaker Change: We guided to a $40 a tonne reduction for the full year and you're going to see that materialize more in the back half of the year.
Speaker Change: And then here in Q1, but it's going to be a consequence of.
Speaker Change: Our favorable cost mix from the stelco acquisition optimization of of the integrated footprint.
Speaker Change: And clearing of kind of higher cost inventory, but that's what we're guiding for the full year.
Speaker Change: Thanks, so much so just to clarify so that those cost reductions would not include a potential of.
Speaker Change: Bringing <unk> back online.
Speaker Change: Correct, Yeah, we're not bringing back at this point.
Lorenzo Goncalves: Got it well Lorenzo Celso.
Speaker Change: So much for all your comments and continued best of luck.
Lorenzo Goncalves: Thank you.
Speaker Change: Thank you next question is coming from Phil Gibbs from Keybanc capital markets. Your line is now live.
Phil Gibbs: Hey, good morning.
Speaker Change: Hey, Phil.
Speaker Change: I wanted to talk a little bit about the the the capital expenditures this year and into the future I know you got some pretty material projects that youre working on over the next few years. So I don't want to lose lose sight of the longer term evolution with our Middletown in Butler.
Speaker Change: Maybe give us some some thoughts on where those where those projects stand in you.
Speaker Change: You know timelines and how youre thinking about those right now.
Speaker Change: Sure.
Speaker Change: Our capex for this year is very clear $500 million for the.
Speaker Change: Legacy Cleveland cliffs, with Brent a $100 million for the you step off with Brit.
Speaker Change: Probably in the high side, even though that's our our numbers since the moment that we.
Speaker Change: Committed of the acquisition of <unk>, but it does.
Speaker Change: There's 100 could.
Speaker Change: Could be some savings here.
Speaker Change: I'm not sure if we're going to be.
Speaker Change: It will be necessary to spend the entire 100 and this year, but that's the number we have in our books right now and another $100 for the three projects Middletown Butler and wisdom.
Speaker Change: And that's pretty much what we are planning to spend this year as far as next year it'll all depend on how things go, particularly in the Middletown, One I believe that we.
Speaker Change: We are doing is growing fast and is going in the right direction Butler the same Tang the modernization of the furnaces at Butler and Youll know the how important grain oriented electrical steels.
Speaker Change: Is for US So we will continue to spend their money in the middle of that project.
Speaker Change: It's all about what's going to happen next with the airports to produce hydrogen in the area that project can become more toward natural gas, which for me is more comfortable.
Speaker Change: Because it's something that we dominate particularly the direct reduction plant operator on their natural using natural gas as reductions that's exactly what we're having to lead. So that's the only caveat that I have for that specific project, but its so far away. We have some so much time to continue to.
Speaker Change: To discuss with the new Department of energy and we will go from there. So we're in good shape in all three.
Speaker Change: And then on the the Weirton project for electrical.
Speaker Change: Steels.
Speaker Change: And related equipment.
Speaker Change: Equipment.
Speaker Change: Can't remember do you have a partner there now I thought that we will some discussion of that okay. You do yes, we do we do we do and whereby equipment. So at the right time, we will review all the names and everything but there. The point is it's on time.
Speaker Change: The orders are in place and we are moving.
Speaker Change: Very very expeditious reason to start producing.
Speaker Change: Transformers and we.
Speaker Change: And one year from now.
Speaker Change: Thank you and then my last question's just on so maybe some clarification just to start the year sounds like you will have a little bit better volume than the fourth quarter, particularly with the added month of Selco.
Speaker Change: But then so.
Speaker Change: Sounds like in the legacy business Youre also swapping a decent amount of tons.
Speaker Change: Call. It service center for for more direct automotive as you've regained.
Speaker Change: We regained some share and then have some new programs kicking in in some decent demand.
Speaker Change: So putting that all together do you actually have.
Speaker Change: Respecting that there's also lags, but do you have do you have higher pricing mix in the first quarter than you do in the fourth.
Speaker Change: Yeah, we will have a higher price mix because you mentioned the.
Speaker Change: The main reason, we're gonna have more automotive in the mix, but make no mistake. Our overall when you look at the end of 2025 fuel when you compare 2025, we had for example, 2021, you're going to see a better 2025 and compares with 2000.
Speaker Change: 'twenty one because overall, we are going to be able to benefit from price increase more instantaneously than we had in that year because on data here were overloaded with automotive at this time, we're not.
Speaker Change: So the business Thats coming.
Speaker Change: Back to us.
Speaker Change: Primarily business that will benefit from the higher prices immediately instead of having a lag that is tied to a contract.
Speaker Change: With automotive actually.
Speaker Change: A couple of competitors of Cleveland cliffs will have this problem and they will have this problem with a price that's really law that depressed that they committed.
Speaker Change: Last year that I did not accept so 2024 was there 2025 would be ours.
Speaker Change: Yes.
Speaker Change: Maybe to add some number.
Speaker Change: I know just to put some numbers around it for Q1 Asps.
Speaker Change: We're expecting it to be up at least $10 a tonne from Q4.
Obviously, the monthly lag contracts will be slightly better.
The quarterly lag contracts are going to be challenge still but youre going to see these these increased auto shipments from Q4 to Q1 will also benefit pricing.
Speaker Change: Yeah.
Speaker Change: Thank you so much I appreciate the clarification.
Speaker Change: Thank you next question is coming from Chris left for me now from Jefferies. Your line is now live.
Chris: Thanks, Operator, Hey, guys. Thanks for taking my question.
Speaker Change: So just first quickly how are you doing just quickly on the on the steel market. I mean, obviously prices have really begun to move higher and you talked about your order books getting better.
Chris: And we have you know.
Chris: Coming impact of tariffs, which would obviously be good for the medium to long term for you, but I'm just wondering about kind of the cadence of demand and is it possible that there has been some demand is being pulled forward ahead of tariffs and maybe after tariffs kicking in we get a period, where we have sort of consolidation and before the prices start to move higher or do you think this is more a reflection of.
Chris: Demand really recovering after a very weak 2024, that's my first question.
Chris: Yeah, I think that is a combination of everything but the demand is coming back in.
Chris: Into 2025 progress, Chris you're going to see.
Chris: More and more domestic consumption for the simple fact that they are not going to be able to import anymore.
Chris: You put tariffs on steel on every single country and when you don't accept exceptions, you don't create mechanisms for people to start to to game the system by filing exceptions and more importantly, when it was shut down that door.
Chris: In Mexico that bring steel through Mexico into the United States and destroys the marketplace. Then we have a great combination.
Chris: To improve to increase demand of.
Chris: Of course in the short term.
Chris: There'll be kind of a rearrangement of the supply chain.
Chris: But look nobody can say that it's sufficient.
Chris: Good to see.
Speaker Change: You all for one steel copper and set some parts move up across the border between the United States and Mexico Seven times.
Chris: And then I'd call that efficiency my goodness, that's just stupid.
Speaker Change: With all due respect so less produce everything here in the United States.
Chris: Uh huh.
Chris: Get things back where they belong and don't forget for a country like Mexico, there should be stacked so it was 25% plus 25% mix of 50%.
Chris: So for the ones that rely on the Mexico time to get another thing to do.
Chris: Yes.
Chris: Great. Thanks for that and then it sounds like there are suddenly working capital build in the first quarter.
Chris: Do you would you expect that to begin to reverse in the second quarter. So should we start to have cash inflows through the rest of the year from working capital and I'm wondering if we might see over the course of the year. The net cash outflow from working capital in the first quarter it would be more than offset over the course of the year. So in other words, you get potentially for the full year, you get a benefit from working capital rather than the drop that you had in the first quarter.
Chris: <unk>.
Chris: Yeah, that's right you nailed it.
Chris: The working capital build in Q4 was was to gear up for a much improved 2025, it was mostly all inventory driven.
Chris: Particularly in raw material raw materials pellets and coke. So we will be able to work through all of this in 2025.
Speaker Change: Okay, great. Thanks, guys and good luck.
Speaker Change: Chris just one more thing on capital.
Speaker Change: Working capital.
Speaker Change: I could have shut down Minnesota.
Speaker Change: At least one liner.
Speaker Change: And a half.
Speaker Change: Produced fewer pellets.
Speaker Change: In Q4 and show a better number.
Speaker Change: And nobody will be so there's a cash burn in this endeavor.
Speaker Change: Didn't do that are produced the belt do you know why because I have full confidence that president Trump would keep the promise that he made.
Speaker Change: <unk> made promises kept.
Speaker Change: And tariffs demur.
Speaker Change: Demand is coming and I have the pellets.
Speaker Change: Remember theres a winter between the pellets and the consumption.
They're consuming mills I have the pellets red to grow.
Speaker Change: So we are ready for this dev to be implemented we are ready to take care of the market, we're not going to justify a we don't have feedstock. We don't have scripted don't have pellets. We don't have people we have everything.
Speaker Change: We produced less less tonnes, but the employees are there.
Speaker Change: And we are ready to go.
Speaker Change: And that's what.
Speaker Change: You do when you are managing for the future and managing for the near future. So that's the working capital things that I would like you to understand and please make your model demonstrates that because that's going to happen throughout 2025.
Speaker Change: That makes sense, thanks, Laurence and good luck. Thank.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question today is coming from our lineup Carlos de Alba from Morgan Stanley. Your line is now live.
Speaker Change: Yes. Thank you very much good morning.
Speaker Change: Just to clarify on the working capital you expect working capital to generate cash in Q1 or to consume cash in Q1, So I thought that after the increase in the fourth quarter, you would reduce working capital in the first quarter.
Lorenzo Goncalves: Yeah, it'll be relatively neutral in Q1, Carlos but youll start to see the benefit.
Speaker Change: And.
In subsequent quarters.
Speaker Change: Okay great.
Speaker Change: Okay.
Speaker Change: Couple of more questions one is.
Speaker Change: On the auto price for 2025.
Speaker Change: Any more color you can offer you expect prices to be flattish to move higher move down and obviously recognizing that now the fixed prices overall represent.
Speaker Change: On a less percentage of your overall volumes.
Speaker Change: Yes.
Speaker Change: The entire picture of automotive who represent less of a percentage of the overall volume and that's a net positive for us.
Speaker Change: Our prices had too.
Speaker Change: To go slightly down in some renegotiations, but not even close to what my competition was locking in for 2024.
Speaker Change: So when I say slightly down say likely though.
Speaker Change: But not the absolute debt.
Speaker Change: Domestic dumpy that I had to compete against in 2024.
Speaker Change: Alright.
Speaker Change: So and.
Speaker Change: Looking at the balance sheet.
Speaker Change: And your working capital and cash generation.
Clearly our priority is to bring down debt.
Speaker Change: Any.
And look I understand that you are very positive 75 things are improving breast side of all your volumes are going to be higher your costs are coming down and.
Speaker Change: Is.
Speaker Change: The elephant in the room I'm going to add just address it is there.
A possibility of an equity issuance.
Speaker Change: Or at this point in time, you feel that that is not needed.
Speaker Change: Okay.
Speaker Change: Actually issue equity when the.
Speaker Change: The equity.
Speaker Change: Price per share is high when the price per share is low I issue unsecured debt because I know that I can do it within a couple of hours.
Speaker Change: So did that issue adult isn't my help.
Speaker Change: We have a falling and we appreciate our bondholders they understand our company extremely well.
Speaker Change: They know what Youre doing so the answer is no we're not going to issue equity.
Speaker Change: Going to do anything we did we issued unsecured debt.
Speaker Change: Due.
Speaker Change: Enlarge our liquidity and if you look at the number you'll see that what we did in this last issuance was just offset the use of cash that we put to use to acquire stock.
Speaker Change: So it's just part of the M&A strategy and everything is growing accordingly to plan.
Speaker Change: Including the fact that we knew that in 2025, we have a new beginning for manufacturing in the United States and we fully support that and we will continue to work to make this thing happen for the country.
Speaker Change: Cliffs <unk>.
Speaker Change: Yeah, Carlos Theres, no need to raise equity or to issue equity at this time, we were very proactive on the balance sheet on the capital structure.
Speaker Change: We did these.
Speaker Change: On secured deals to raise liquidity now we have all the liquidity that we need.
Speaker Change: We have secured capacity as well and even more importantly, we have a capital structure. That's designed that's pre designed for debt reduction we have the ABL, that's kind of the number one target of free cash flow going forward, but we also have our bonds are well staggered in a way that they become <unk>.
Speaker Change: Global with no penalty starting this year so even after we've paid down the entire ABL. We have these different tranches of bonds that we can start to attack. So its debt reduction from free cash flow generation.
Speaker Change: With no equity raised and again, if you look at the they stack youre going to see that the capital structure was put in place that way by design. So we knew that we would stop start to having a tranches of bonds ready to be paid down or paid off with cash.
Speaker Change: Flow generation starting 2025.
Okay and understanding that you may not answer this question based on what you said earlier in the call.
Speaker Change: I respect that I will respect that obviously in the balance sheet is that a limitation to pursue another acquisition.
Speaker Change: Highlighted in the past.
Speaker Change: Let's see what happens.
Speaker Change: There is a guy that says that a lot when he says that the ones that are in the receiving and they usually they they know that they are in a bad spot, let's see what happens.
Speaker Change: But to answer your question Carlos the balance sheet is not a constraint.
Speaker Change: You know we have proven that we can raise capital quickly when needed.
Speaker Change: Our balance sheet is not the constraint.
Speaker Change: Alright excellent well, thank you very much.
Speaker Change: Thank you.
Speaker Change: The next question is coming from Lawson Winder from Bank of America. Your line is now live.
Speaker Change: Thank you operator, and good morning, Lorenzo and sell so nice to hear from you both.
Lawson Winder: So you mentioned that are bringing the Cleveland works number six back online is not something that you're considering at the moment could you maybe speak to the conditions for a potential restart and how you think about about potentially doing that.
Lawson Winder: Sure answer here lots of no we're not going to talk about that there is no no no no subject to discuss one six right now it's idle indefinitely idle and due to remain idle until you decided otherwise.
Lawson Winder: Okay perfect that's very helpful.
With the synergy he noted.
Speaker Change: This telco synergies that as you noted a $120 million to be achieved by year end 'twenty five and you're on track to do so.
Speaker Change: You mentioned potential upside to that is there at the time at which we could get a sense of what some of that upside might be and could some of that potentially be realized even this year before year end.
Speaker Change: So I'll take that.
Oh, Yeah, I mean as it relates to the stucco synergies lesson, we feel extremely confident in being able to overachieve that $120 million that we outlined.
Speaker Change: I think we've given the.
Speaker Change: The breakdown of that but you know if you just look at what we've done with our other acquisitions, we have a track record of over achieving these synergies.
Speaker Change:
Speaker Change: Portion of that 120 has already been set in motion.
Speaker Change: By by the top management departures kind of Duplicative board expenses audit expenses and things like that but we continue to identify more and more unique ways to maximize value from this combination.
Speaker Change: And we will be updating you guys over time, but for now we feel extremely confident about the 120 that we originally outlined.
Speaker Change: Yeah.
Speaker Change: Okay, Fantastic and if I could ask about.
Speaker Change: Zanesville non grain oriented line that started up mid last year is.
Speaker Change: Is that now pretty much fully ramped up and what are you seeing in terms of pricing.
You said non grain oriented.
Speaker Change:
Speaker Change: Is that what you're asking.
Speaker Change: Yes. It is electrical steel line exactly the one that was out of commission.
Speaker Change: Well last summer.
Speaker Change: Yeah look we made a as more investments in our zanesville.
Speaker Change: Plant that finishes electrical steels.
Speaker Change: To increase our capacity no oriented electrical steels for 50000 tons a year.
Speaker Change: That's more investment paid off we continue to deliver our oriented electrical steels and we continue to sell on oriented electrical steels.
Speaker Change: Our competitors two of our competitors.
Speaker Change: Maintenance.
Speaker Change: Investments to produce a lot more in oriented electrical steels.
Speaker Change: Because they are believers.
Speaker Change: And electric vehicles into the thought of electrical vehicles will replace all ice vehicles or <unk>.
Speaker Change: Burner combustion engine vehicles.
Speaker Change: Short periods of time, good luck with that.
Speaker Change: My goal with electrical steels has always been to produce trustworthy.
Speaker Change: And transformers grain oriented electrical steels that one it's only cliffs and you'll continue to be only closed for the foreseeable future.
Speaker Change: Plenty of room.
Speaker Change: For other suppliers to produce grain oriented electrical steels, but you need to have one thing that people talk lucidly about but sometimes theres nothing behind the skull Tech knowledge, we have the technology, we produce the army corps grain oriented electrical steels as of today.
Speaker Change: The best selling grain oriented electrical steels in the world. So we are good at that we have no competition competition would be welcome I'm pro competition come to compete with us Theres a market to hear for grain oriented electrical steel you have to produce it so far is only cliffs cliffs Andrea.
Speaker Change: Happy.
Serving the market so happy that now we're going to produce transformers ourselves.
Speaker Change: Okay. Thank you both for your comments.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Mike Harris from Goldman Sachs. Your line is now lives.
Speaker Change: Thank you and good morning all.
Speaker Change: Good morning wanted to look at.
Speaker Change: If we look at the expected cost reductions in 2025, and what you've done over the past two years I mean, that's about $150 per tonne.
Speaker Change: Just curious has that move you.
Speaker Change: Further to the left on the cost curve.
Speaker Change: 550.
Speaker Change: For Todd.
Speaker Change: Well some of that perhaps recovering from any drift you may have experience to the right of the cost curve.
Speaker Change: Of course, this number moves us to the left of the cost curve, but the point, though in the cost curve is that we are not a company that's designed to operate.
Speaker Change: Low capacity, we're not a company designed to operate at low grade steels.
Speaker Change: We are designed to produce high end skus.
Speaker Change: It's like if you have a car.
Andrew: We want to make some extra money Andrew.
Andrew: And youre going to drive for Uber is better to buy a camry instead of buying a ferrari it doesn't work as a mover.
Speaker Change: We are a Ferrari we.
Speaker Change: We have good when the economy is working when the superpower is producing things domestically.
Speaker Change: And when you don't allow others come to destroy or market by destroying our pricing.
Speaker Change: And I know there is a generation here that all in all as many mills will come to the world of integrating these two companies.
Speaker Change: As you work for Goldman Sachs right. So as you May know there is an interest for us.
Speaker Change: An international company to acquire integrated assets in the United States Whoever ask you why.
Speaker Change: Why is.
Speaker Change: Just because.
Speaker Change: <unk> two assets have a place.
Speaker Change: In economies that are functional and thats, what we have now in the United States. So wait for us in 2025, and Youre going to see.
Speaker Change: What.
Speaker Change: Brent economy manufacturing economy fueled by domestic steel production can do when you have the right assets to support that type of effort and that's Cleveland cliffs and the country I'm talking about in the United States.
Speaker Change: Okay.
Speaker Change: That's helpful color and just on capacity.
Speaker Change: Capacity utilization can.
Speaker Change: Can you help us with where you are right now and kind of how you see that changing in 2025, given current demand visibility.
Speaker Change: Yeah, we are.
Speaker Change: It's still moving a transition from a lack luster 2024 in which like I said in my prepared remarks.
Speaker Change: More cars imported cars sold in the United States, then gosh produced in the United States. So that's an aberration.
Speaker Change: That's criminal so we are fixing that and as soon as we have more and more cars sold in the United States are produced in the United States, where there was supply in the steel for that it's coming in 2025.
Speaker Change: Our <unk> blast furnace is done and we're going to keep it down for now.
Speaker Change: So capacity utilization percentage I don't even know how these things are calculated that's the.
Speaker Change: The picture that I need to tell you we have plenty of capacity to produce more in our downstream lines and we are very happy with.
Speaker Change: The fact that we are self sufficient in feedstock and our supply chains are all domestic.
Speaker Change: Trolled by Cleveland cliffs.
Speaker Change: Okay. Thank you a lot.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question today is coming from Kristen Gresser from BNP Paribas King Your line is now live.
Speaker Change: Yeah.
Kristen Gresser: Yes, hi, Thank you for taking my questions I have two first can you discuss a bit.
Kristen Gresser: Your view on the potential dilutions of tariffs I mean, if we look at 2018 in 2002, we had this pattern of boom and bust tariffs in Q1, and Q2 rallies and painful H you said I like to have your view on why do you think it's different this time and also you touched on the tariffs on the downstream side.
Kristen Gresser: How much of that how does it benefit could be see I start there. Thank you.
Kristen Gresser: I didn't I didn't get the second part I'll respond to the first part can you repeat the second part.
Speaker Change: This time around that nutrition, and I heard that from the most of the secretary.
Speaker Change: The administration is not planning to to toy with exceptions.
Speaker Change: The exclusions exceptions.
Speaker Change: Are always the the beginning of the end so there's a lot of commitment right now not to allow for the mistakes of the past.
Speaker Change: And the exclusion process took off a huge boost.
Speaker Change: When president bite into core office. It was the time of the exclusion.
Speaker Change: Kept it the tariffs but the.
Speaker Change: It kept Q3 to replace but with so many exceptions that are there.
Speaker Change: The holes compromise the entire thing I don't see that happening at this time around it's a clear commitment of the Trump administration to keep doing.
Speaker Change: Entire thing intact and exceptions exclusions are not really under discussion right now.
Speaker Change: Repeat your your second.
Speaker Change: Second part of the question because I really missed that.
Speaker Change: Yes, no. It was on the downstream terrorists some articles of steel so the new tariffs put on that.
Speaker Change: Mentioned it in your prepared remarks, how much of that is a benefit for your operations directly or indirectly.
Speaker Change: Yeah look let's think about the cars.
Speaker Change:
Speaker Change: In a world of free trade by the way of free trade.
Speaker Change: That doesn't exist.
Speaker Change: We all know that but in a world of free trade.
Speaker Change: Gosh produce it in China.
Speaker Change: Dressed shipped through Mexico can't hit the United States for $20000.
Speaker Change: Tumors would be happy to Buck.
Speaker Change: And that's valid for absolutely everything.
Speaker Change: We think that you can imagine so don't need to produce anything else would just be here in the United States buy on Amazon and Sue each other so that would be our.
Speaker Change: Daily Actives and all working from home. So this thing is not going to bleed that way.
Speaker Change: So downstream tariffs are important to avoid the the the leakage that would be generated by high end products like cars.
For example, and something else in another thing and another thing and all of a sudden you don't have an economy that can function anymore. So we are plugged into holds the administration's plugging the hole.
Speaker Change: And we are going to have a much different world than the one that you described with leakage.
Speaker Change: What are you all the tariffs I don't think that that will happen and Oh my.
Speaker Change: Standpoint, we're going to do whatever we can to help the nutritional help us and that's what's happening right now.
Speaker Change: Alright.
Speaker Change: That's very clear and lastly, just a maintenance question on that the.
Speaker Change: Cash interest expense for the year. If you can provide some guidance there. Thank you.
Speaker Change: Yeah.
Oh, Yeah sure Kristen if you don't know how to calculate cash interest expenses you just take the coupon of the bonds and you multiply it by the amount outstanding you'll get the cash interest expense.
Speaker Change: Yeah.
Speaker Change: Alright, Thank you and lastly, just on the pension benefits you booked.
Speaker Change: In Q4 can you provide some guidance on that and can you remind us if it's included.
Speaker Change: Your adjusted EBITDA calculation. Thank you.
Speaker Change: 150 million, it's all included.
Speaker Change: 150, yes, okay.
Speaker Change: Jason.
Speaker Change: Yes, I got you here. Thank you okay alright.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Thank you very much for interesting Cleveland cliffs, that's continue to.
Speaker Change: Operate and take care of business here and please watch things evolve things are getting better it will get much better and we appreciate you guys falling and.
Speaker Change: Comparing what we have told you today in this call have a great day, and we'll talk soon bye now.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day.
Speaker Change: Thank you for your participation today.