Q1 2025 Cleveland-Cliffs Inc Earnings Call
Sherry: Good morning, ladies and gentlemen. My name is Sherry, and I will be your conference facilitator today. I would like to welcome everybody to Cleveland-Cliffs' first quarter of 2025 earnings conference call.
Sherry: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Sherry: 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's litigation reform act of 1995 1995
Sherry: at ClevelandCliffs.com. At the conclusion of a call, it will be archived on the website and available for replay. The company will also discuss results
Speaker Change: excluding certain special items. Reconciliation for regulation G purposes can be found on the earnings release, which was published yesterday. At this time, I would like to introduce Lorenzo Goncalves, Chairman, President and Chief Executive Officer. Thank you, Senator.
Thank you, may begin.
Thank you Sherry, and good morning everyone.
Speaker Change: Our first quarter results were unacceptable, with worse than expected a bit in cashflow, mostly due to underperforming non-core assets.
Speaker Change: Underlined these weak results was the legate impact of very low steel prices that we were exposed to during the second half of 2024 and into the beginning of 2025
Speaker Change: The implementation of a cross-the-board tariffs on foreign steel under Section 232 executed by President Trump on March 12th.
Speaker Change: was the most relevant and necessary action to eliminate unfairly priced competition. The entire domestic industry, Cleveland-Cliffs Inc. continues to suffer.
Speaker Change: And we're starting to see a more consistent business environment and improved pricing in April and May.
Beside Spraising
Speaker Change: In order to bring back consistent profitability and free cash flow generation through the balance of 2020-05 and into 2026.
These three issues must be resolved.
Issue number one
Under Performance From Our Core, Automotive End Markets
Let's address each one of these three issues.
on the first one.
Speaker Change: The numbers speak for themselves, on the automotive industry in the United States.
Speaker Change: In 2024, only 50% of the car sold in the United States were actually made in the United States.
Speaker Change: Set another way. Important cars sold in our country basically split the marketing half.
Speaker Change: No one would argue that we don't need automotive production in the United States and that it is okay to import cars instead of produced then here in the US.
Speaker Change: Therefore, nobody should be surprised to see consequential policy work toward re-shorting automotive production.
Speaker Change: The Trump administration has strong, strong support for both the American steel and the American automotive sectors
Speaker Change: Fortunately, Cleveland-Cliffs is situated right there at the crossroads of these two sectors that are so critical to the U.S. national and economic security.
Speaker Change: Cliffs is not just a steel company that happens to make some automotive steel.
Speaker Change: Cliffs is the American steel company designed to supply domestically produced steel to the American automore of the industry.
Speaker Change: The actions taken by the administration are squared aimed at boosting the production of cars and trucks in the United States, using steel produced in the United States.
Speaker Change: The best suppliers of steel for these current situations are the ones that are well-established with the highest OEM marks for quality, reliability and delivered performance
Speaker Change: As our automotive clients are now working to reshore their manufacturing footprint in the United States with a great sense of urgency, we are proactively engaging with these automotive customers and finding short-term solutions for them [inaudible]
Speaker Change: There is plenty of spare capacity to increase car production here in the United States right
Speaker Change: And we are already seeing some of our most important customers shift overseas production back to Made in USA vehicles.
Speaker Change: We are enjoying meaningful success in working with both domestic and international OEMs in securing longer-term automotive still supply.
Speaker Change: As they run their existing factories in the U.S. at higher utilization rates and make plans to build new plants
to experience domestic automotive production.
Speaker Change: We have also gained back market share from our key automotive OEM accounts.
Speaker Change: At this point, it is very clear, through our or the book, as well as a consequence of recently extended contracts with our well-established clients, that profoundly change our coming.
Automotive remains a high margin business for clips
Speaker Change: And we expect it to see a benefit in the 250-500 million dollar EBITDA range annually starting to incrementally materialize in the second half of this year and fully impacting our results in 2026.
This brings us now to issue number two
Speaker Change: We firmly believe that the Trump administration is a spot on in its push to bring back manufacturing to the United States.
Speaker Change: And we know that in the long run, these will be good for the Americans to industry and for Cleveland-Cliffs . . . . . . . . .
Speaker Change: However, in the short term, we need to do everything we can to make sure that we remain cross-competitive.
Speaker Change: In order to do so and to return to profitability, we are taking decisive actions to optimize our operating footprint .
Speaker Change: Several of the assets impact have been lost making for some time.
Speaker Change: But we have been absorbed in these losses in anticipation of new business resulting from projects widely advertised but never materialized, supported by the Infrastructure Bill, the Chiefs Act in the IRA.
Speaker Change: Unfortunately, that never happened, creating a situation that we now need to fix [inaudible]
Speaker Change: We don't take these decisions lightly knowing that approximately 2,000 employees were impacted by these operational changes.
Speaker Change: That said, these are necessary actions and we have made the following changes to our operations.
First Action
Speaker Change: We fully idoled our Minorca mine impartially idol, our Hebe and Tecronite mine, both in Minnesota.
Speaker Change: These idols were necessary to rebalance working capital needs and consume excess pellet inventory that we produced in 2024, responding to the weak demand that plagued us during the final months of dividing administration.
Second action, we're idling the hot ends at Dearborn Michigan.
Speaker Change: Dear Born Works has very modern downstream equipment with a PLTCM pickling line tonne-encode of milk and an extra wide automotive grade galvanizing line for exposed parts.
These facilities will continue to operate with no interruption.
But Diaborn also has a stranded blast furnace B.O.F. Guester. Thank you.
without a hot strip meal.
Speaker Change: We'll be replacing Dearborn current production of Hot Metal with the restart of our Cleveland number six, Blasphonus. We should be back in operation by the time the Dearborn Blasphonus
Speaker Change: The minds and the dear born blasphemers idols are geared toward efficient gains and these changes will not affect our ability to serve our OEM and service center customers .
Speaker Change: We will be idling these assets, which are included in the next three actions [inaudible]
Third Action, Stilton, Pennsylvania Pennsylvania
Estuto is primarily an electric arc furnace rail mill.
Unfortunately, our rail customers prefer artificially cheap, imported rail.
Speaker Change: In one case, the customer imports 50% of his needs from Nippon Steel.
Speaker Change: Who is continuing to ship rail from Japan right through the Section 232 tariffs.
Speaker Change: That creates substantial pricing pressure for the domestic portion or the other 50% of the business that we share with other two domestic supplies.
Force Action, Van Schahacken, Pennsylvania
Gonsha Hacking is a high cost specialty plate finishing facility. [inaudible]
Speaker Change: We can't perform the vast majority of the finishing work currently done at Konsha Hacking in our EAF facility located in Kutsville, Pennsylvania.
Fifth and final action.
Riverdale, Illinois Illinois.
Speaker Change: Riverdale depends on liquid big iron sent by railroads across the state line from Indiana.
Creating a significant cost disadvantage for the plant
Speaker Change: There are several competitors for the River Day or Book of Business, each of them with a more competitive cross-profile [inaudible]
with no change in overall volume output.
Speaker Change: The Idol of Riverdale, we will allow us to keep the pig iron where it belongs at Indiana Harbor, a plant that currently has underutilized capacity in both still making and rolling.
Speaker Change: With more tonnage of liquid pig iron available for internal use, we expect in the Anahabah to be one of the biggest beneficiaries of the expected reshoring of automotive production into the United States.
Rail, specialty plate, and high carbon is still sheet
Speaker Change: The situation can all change, but for now, this is the right thing to do [inaudible]
Speaker Change: Taking together, this change represents savings of over $300 million annually, not including the reduction of associated overhead and improving the efficiencies at other operations.
Speaker Change: Very importantly, as we eliminate all this legacy in efficiency, it will become apparent that Cliffs is not a high cost steel producer.
Speaker Change: By using pellets and HBI, 100% made in USA, in hours to plants.
Speaker Change: At today's bushling scrap price, we produce hot-rolled coil in our integrated mules for a cost that is very competitive when compared to any EAF flat-rolled mini-mule.
Speaker Change: This is why the A.F. Minimuse are lobby hard to exempt big iron fronters.
They want to continue to enjoy a very unfair advantage in the future.
Speaker Change: By continuing to be able to buy dumped, imported cheap, big article from Brazil, Ukraine, South Africa.
The level playing field rule should be
As much as it is applied to everyone else
Speaker Change: and we fully expect that the E.A.F. Minimuse are treated by the Trump Administration. The same way, all other important as of don't the staff are treated.
Speaker Change: issue number three is the contract with Arsolo Middle to supplies labs to their 50-50 joint ventures with Nippon Steele, Inc. Alabama.
Speaker Change: We signed a five-year agreement to supply the covered, hostage milk with up to 1.5 million tons of slabs per year, primarily from Indiana Harbor.
Speaker Change: This is lab supply agreement has become exceptionally burdensome in the current environment.
The contract price for these labs.
Speaker Change: is driven by the Brazilian FOB index that usually correlated with U.S. flat-rolled steel pricing.
Speaker Change: So, when we guided to hot-rolled sensitivities, this is lab volume was baked in.
However, the correlation with HRC has been disrupted significantly frequently.
Speaker Change: Brazil, rightfully so, is now facing 25% tariffs in lieu of the previous Section 232 is lab quota.
Speaker Change: With that, the Bayer Universe for theirs labs in the US has shrunk. Thank you for your time.
Speaker Change: and the Brazilian lab news have had to look elsewhere for buyers in other markets which led them to dump their lives at lower prices.
Speaker Change: So, why would the domestic federal prices have gone up? Our realized prices under this particular Brazilian price linkage arrangement have declined.
Speaker Change: Leaving us with a significant negative margin on this product that is reflected in our Q1 results
Speaker Change: We have discussed possible remedies with Ursula Miro, but a mutually acceptable solution has not materialized.
Speaker Change: At this point, as the expiration date of this lab contract is getting closer, the best solution for Cliffs is to let the clock run out on December 9, 2025.
Speaker Change: Based on the current market for his labs in HRC, we expect to see a benefit of approximately $500 million in annualized EBITDA, beginning in 2026.
Speaker Change: just by virtue of no longer having this honorous contract in place.
Speaker Change: Let me now touch on the stealth acquisition which has proven to be well aligned. We are known for the board of commercial strategy.
Speaker Change: Stelco is the still company of Canada and we from day one have taken deliberate steps to redirect the Stelco sales into the Canadian market where they belong.
Speaker Change: Stalker's Operations offer an ideal platform to serve their home market with speed and efficiency.
Speaker Change: We just help with favorable cost structure. They can't compete for and win any business in Canada.
Speaker Change: Previously, as a participant in the US market, Estelka was a major disruptor here in the Midwest of the United States.
Why would Stockholm has benefited from absorbing legacy Cliffs business in Canada?
particularly in automotive
Speaker Change: The strategic repositioning of Stelco as a Canadian supplier of steel to the Canadian market has given our US mills more business opportunities and opportunities.
Speaker Change: Ultimately, allowing us to restart Cleveland Works, number six, Blasphons
Speaker Change: On the strategic front, some of you have probably seen headlines about the uncertain future of our DOE supported strategic project at Midotown and Butler.
Speaker Change: President Trump's administration clearly has different energy policy priorities than the Biden administration.
Speaker Change: That said, we are in directly dialogue with the Department of Energy, Leadership on these awards and the agents wants to fully understand both projects and the benefits of each one.
Speaker Change: As it relates to the larger Middletown project, we are working with the government to explore change to the scope, to better align with the administration's energy priorities.
Speaker Change: Such a change in scope would entail a substantially lower cost project.
Speaker Change: One that does not assume availability of massive amounts of hydrogen and would instead rely on readily available and more economical fossil fuels.
Speaker Change: We will hopefully have more to share on this project in the near future but it is fair to assume that the Middletown Project, as announced in 2024, will be substantially altered.
It's for the Butter Project.
Speaker Change: The induction reheat for this project is highly accretive with a favorable payback.
Speaker Change: and at a $75 million DOE grant amount, it is not something we feel at risk
Speaker Change: Importantly, the Butler project directly supports the US energy dominance goals of President Trump's administration.
Speaker Change: As the only grain-oriented electrical steel producing mill in the United States,
Butler worked this critical to energy security in our country.
Speaker Change: This project will expand the capacity and capabilities of Butler Works in response to the evolving demands of the transformer industry.
Speaker Change: We are still big fans of this project for its economics, low capital burden, and enhancement of our most profitable business, the production of growth, grand-oriented electrical
Lastly, the Transformer Plant at Wyrton, West Virginia.
Speaker Change: Cliffs needed a partner that could supply the technology and licensing required to produce
Speaker Change: With our partner, currently having second thoughts about the weird location and also considering a smaller plant than the one we had originally envisioned, we have made the decision to no longer for suitless investments.
Celso: I will now turn it over to Celso for his remarks
Good morning, everyone.
Celso: Q1 reflected much of the lagged impact of the challenging pricing environment from late 2024 and pre-section 232 steel tariff environment in early 2025 and the underperformance of non-core assets that were now idling [inaudible]
Celso: For the first quarter, we posted an adjusted EBITDA loss of $174 million for $172 million.
Celso: Total shipments in Q1, 4.14 million tons, consistent with our guidance to break above the 4.0 million ton mark with a full quarter contribution from Stelco.
Celso: Q1 Price Realization of $980 per Netton was only a slight improvement from Q4's 976.
Celso: Remaining weighed down by lower than expected realizations in plate and spreads for cold roller.
Celso: The inclusion of Stelco into our results continues to help manage our weighted average unit costs, but the underperformance of non-core assets in Q1 largely drove an increase in our unit costs of $15 per ton.
Quarters like Q4 2024 and Q1 2025 are completely unacceptable nor are they a reflection of our typical run rate for us.
Celso: Between improved pricing and the three factors that will run the laid out automotive recovery I'd only have lost making assets and the end of the owner of slab contract financial results should improve in the second half of 2025 and then reset higher in 2026 [inaudible]
as all of these factors become fully baked.
Celso: The six separate asset idolings are the primary reason why we expect even greater cost reductions year over year.
Celso: Our previous expectation was a $40 per ton year-over-year reduction in 2025 relative to 2024, and now we're at a $50 per ton year-over-year reduction.
Celso: Because of the timing of the war notices, all of these reductions will come through in the second half of this year.
Celso: On our last call, I indicated that with the inclusion of Stelco, for every $100 increase in the HRC price on an annual basis, our yearly revenue would increase roughly $1 billion, all things equal.
Celso: and after factoring in changes like profit sharing and historical scrap correlations, this $1 billion impact would largely flow directly down to EBITDA.
This correlation still applies, assuming all things equal.
Celso: However, the current environment has resulted in some unusual dislocations that have challenged the all things equal assumption for the equation.
Celso: For example, as previously mentioned, while the HRC prices have rebounded here early in 2025, slab prices have not moved up in tandem as you would typically expect.
Celso: The fact that we have kept Stelco Tons primarily in Canada and other factors like lower than expected plate and cold-rolled correlations to hot-rolled prices have also muted the impact of that billion-dollar correlation for now.
Celso: With that said, even with the HRC Curve currently in the 800s, you can still expect meaningful even die improvement in performance in the second half of 2025, relative to the first half.
Celso: Something that often comes up in moments like this is the vestitures of non-core assets.
and this is a very acid rich company.
Celso: We have recently received several unsolicited imbounds from buyers interested in acquiring an array of assets in our portfolio.
Celso: While there's no assurance that any of these opportunities will ultimately lead to any transactions, we're always open to pursue a deal if the value is right, if competitive dynamics are not disrupted, and if the sale does not compromise our key competitive advantages.
Celso: We also continue to take a serious look at capital expenditures and have further reduced our 2025 CapEx guidance from $700 million to $625 million.
Celso: Mostly due to reduced sustaining cap-backs at our idle assets and canceling of our capital deployment at Weirton.
Celso: Beyond 2025, Lorenzo has laid out the status of our three strategic projects and based on that it's fair to expect significant reductions in CAPEX in 2026 and beyond as well. Though we won't have exact numbers until our negotiations are more advanced.
Celso: From an S-GNA standpoint, we've also taken a closer look and taken action to reduce overhead costs and we're lowering our expected S-GNA expense in 2025 from $625 million to $600 million.
Celso: From a balance sheet perspective, despite our elevated debt level, we have no meaningful debt maturities until at least 2027, and less than $700 million in total bond maturities over the next four years.
Celso: We remain in a healthy liquidity position following our latest well-timed capital raise. We have approximately $3 billion in available liquidity and another $3.3 billion in secured capacity.
Celso: Our leverage metrics remain above target, but will continue to look to meaningfully reduce debt and leverage as we return to profitability and deploy 100% of our cash flow generation towards debt reduction [inaudible]
Celso: To the extent that our inbound inquiries lead to successful divestitures.
Celso: We're also deploying cash proceeds from non-core asset sales towards that reduction as well.
Celso: American steel companies can compete and thrive as long as illegally dump steel remains outside of our borders. President Trump's Section 232 steel tariffs are here just for that.
Celso: Our priority now is to return to profitability and the strong free cash flow generation that we have delivered in the past.
Celso: Our focus is on serving our customers, reducing costs, optimizing our operating footprint, generating free cash flow and lowering our debt.
Celso: With that, I'll turn it over back to Lorenzo Ferris' final remarks.
Thank you, Cecil.
Speaker Change: It's clear to us that our rebound from this week quarters is coming mainly from our many self-help initiatives, but also from the proper enforcement of the trade laws of the United States.
Speaker Change: The pathway back to healthy EBITDA in cash flow generation is not a burden some mountain to climb, but rather a matter of execution on actions that are largely already in motion. [inaudible]
With that, I'll turn it to Sherry for Q&A.
Speaker Change: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation telephone indicate your linens in the question queue.
Speaker Change: You may press star two if you would like to remove your question from the queue and for a participant using speaker equipment it may be necessary to pick up your handset before pressing the star keys One moment where we pull for questions Let's get started.
Nick Giles: Our first question is from Nick Giles, with the Riley Securities, please proceed.
Thank you operator, good morning everyone. Good morning everyone.
Nick Giles: This is encouraging to see. And so how should we think about the timing to achieve the full run rate of these savings? And I was curious if there are ultimately any additional actions that could still be taken to improve your through cycle earnings. Thank you so much. Thank you so much.
Speaker Change: Good morning, Nick. I'm going to translate that to Celso to answer. Go ahead, Celso
Celso: The war notices, for example, it's a 60-day period. So if you think of when we took action in 60 days you're into the beginning of the second half of the year. So that's when you'll see the full impact of the 300 million in saving start to materialize.
Celso: And just to give some more detail around that, you know as we noted we also posted a presentation on our website by the way which kind of lays out more of the details of the details.
Celso: But the majority of that, 300 million is related to the Cleveland-Dearborn switch, that's about 125 million, and then you have 90 million, call it 90 to 100 million is related to the Riverdale fixed costs.
Celso: 45 million for Contra Hawk, and about 30 million for Steelton, and then the balanced 20 million or so is the Menorca and the heavy idols. But you should expect all of that to be realized here in the second half of 2025.
Celso: Celso, this is super helpful. I really appreciate that. My follow-up would be, you mentioned seeing it in the second half, and so...
Speaker Change: Kaden's on the cause side, obviously we'll see some improvement in ASPs as well, it could begin in two cues, so just curious how you would quantify those two buckets. Thanks a lot.
Speaker Change: Yeah, I mean, from a kind of Q1 to Q2 sequential standpoint, you won't see a material impact cost should actually be up a little bit called $5 a ton from Q1 to Q2 because we're going to still have those non-core assets in our portfolio.
Speaker Change: But later in the years, when you're going to start to see a more meaningful impact, you know, from optimizing these, you know, the footprint, the reduction of the fixed costs, and then the reduction of the overhead. So we'll see a significant benefit in the second half relative to Q1 and Q2.
I'll jump back into queue, but continue best of luck.
Thank you, Nick. Appreciate it.
Speaker Change: Our next question is from Albert Rillini with Jeffries, please proceed.
Albert Rellini: Hey, good morning, allorant Celso. Thank you for taking my question.
Um, I think we're all good.
Albert Rellini: Any kind of, with that points out, with any kind of change. [inaudible]
and on
Albert Rellini: That's a very good question, Robert. We have to qualify when we talk about tariffs, which tariffs we're talking about because we...
Speaker Change: By design, we acquired stealth with the decision already made in all minds that will take stealth out of the American domestic market as a disruptor like they were here, particularly Cleveland and Chicago here in the Midwest.
Speaker Change: So, Section 2, 3, 2, 1, still, we're just a consolidation of what we're already doing, so not a change in our game plan [inaudible]
Speaker Change: And also it impacts other competitors from Canada that also do the same thing. And the Section 2-3-2 create a situation that's completely impossible for any other Canadian trying to sell in the domestic market. But it's all baked in our plan, not to sell Canadians to produce it, still coincide with the United States. So we'll change on that other than facilitating the competition against other Canadians inside the United States.
However, the broader terrorists.
Speaker Change: that hit Canada, impacted our clients. And then our clients were impaired in terms of selling their product to the United States.
Speaker Change: That was not part of our plan. Absolutely not. Nobody saw that coming
Speaker Change: Otherwise, I would not have be so eager to buy stealth if I knew that Canada would not be treated like a friend.
Speaker Change: So, I do believe on the other hand that this situation is completely temporary . . .
Speaker Change: I see the carny Trump meeting as a step in the right direction in terms of normalizing the relationship between the United States and Canada and there's no other way to go. We are tied by the hip and we cannot go without each other. We need each other and we should continue to work that way.
Section 232 is a different animal.
Speaker Change: Did it answer you, Albert? Yeah, that's clear. Thank you, Hunter.
Thank you [inaudible]
Speaker Change: Our next question is from Lawson Winder with Bank of America. Please proceed.
Speaker Change: Thank you, operator, good morning, Lorenzo, and it's also nice to hear from you both, and thank you for the update.
Lawson Winder: You know, should Canada go back to being exempt from an auto production point of view? Is there some risk around that outlook?
Between the West and Canada [inaudible]
Lawson Winder: that are produced in Canada, that are necessary to assemble a car in the United States, I think.
Lawson Winder: The opportunity to use parts, particularly parts from Canada, and also from Mexico, but particularly parts from Canada. So this is in the making and the car manufacturers are doing a good job.
Lawson Winder: with the Trump administration. And we are seeing the benefits. So, we are extremely excited with the new opportunities in delivering more steel to the common factors here in the United States. Let's face it, Lawson, even if...
The number of car suits [inaudible]
Lawson Winder: in United States, or in North America for their matter.
Arloir,
Lawson Winder: In the near future as a result of the restrictions that were applied by President Trump, the overall number of cash produced in the United States will increase and that's for us is what matters [inaudible]
Lawson Winder: For us, suppliers of steel, that's what matters. Let's put numbers on that. Sixty million car sold, that's called eight million cars produced here and eight million cars imported from somewhere. If the number goes from 8 to 12,
And that's what I'm preparing my company for.
These will happen?
Lawson Winder: And I'm being very conservative in my numbers. We are preparing Cleveland-Cliffs to be...
Lawson Winder: By far, the biggest beneficiary of the increasing production of cars in the United States because we are a well-established producer of steel for the automore of industry.
Speaker Change: Okay, fantastic, that's very helpful. And then if I could pull up on the question on-
Speaker Change: The Quarterly Bridge, Celso, just on ASP and COS. You mentioned COS could be up and I just I didn't catch if you said the ASP would...
Speaker Change: If that would be up, so I just basically what I'm trying to get out is to understand like directionally or or magnitude wise, how much are we going to be up in terms of even a die in Q2 versus Q1?
Speaker Change: Yeah, sure, hey, Lawson. Yep, so I mentioned cost should be up about $5 a ton from Q1 to Q2, but ASP should be up much higher than that. Call it about $40 a ton from Q1 to Q2.
and if you break down kind of from...
Product by Product .
Speaker Change: You know, the quarterly lag contracts are way better. Call it $200 a ton, in Q2 relative to Q1.
Speaker Change: The monthly lag contracts will be up about $100 a ton and spot pricing right now is generally much higher for the US business So those are the sort of the biggest drivers of that $40 a ton ASP increase from Q1 to Q2
Speaker Change: I guess a couple of questions around that like one can you remind us of what debt covenants that you have.
Speaker Change: And then secondly on the asset sales side.
Speaker Change: To the extent that you can discuss this I'm not sure. If you can like what kind of magnitude would be talking about and what potential assets would be be talking about it. Thank you very much.
Speaker Change: Yes sure good morning.
Speaker Change: So all of our covenants are springing covenant. So theres nothing that we are too worried about the leverage ratio.
Speaker Change: Does increase on our borrowing base by 25 basis points.
Speaker Change: When you are over four times Levered so were.
Speaker Change: Experiencing that now.
Speaker Change: Other than that.
Speaker Change: Theres nothing that were concerned about and then in terms of.
Speaker Change: Asset sales like I mentioned, we have a lot of assets that are noncore over very asset rich company.
Speaker Change: I am not going to go into specifics of which ones, but we have received unsolicited inbounds and we're talking assets that could.
Speaker Change: That could bring several billion dollars of potential value so to the extent that those materialize and we're able to sell those for cash all of that cash will be used to pay down debt as well.
Speaker Change: And we have a capital structure, just kind of while we're on it that is kind of pre designed for deleveraging as you know right. The ABL can be easily pay down with no.
Speaker Change: No breakup fees.
Speaker Change: And all of our bonds are staggered, we don't have any meaningful maturities.
Speaker Change: Some of those bond tranches are actually callable at par with no penalty either so theres a lot of avenues that we can deploy.
Speaker Change: Cash toward should we.
Speaker Change: <unk> be successful in selling those assets.
Speaker Change: Okay. Thanks, that's clear and just a follow up on these transactions.
Speaker Change: Potentially be announced.
Speaker Change: And the next few months, so it's longer lead time, but thank you.
Speaker Change: Some of them are in advanced stages, I think there are some that we could announce still this year summer are going to take longer and like I said nothing is guaranteed but it's nice to see that there is.
Speaker Change: A lot of inbound interest.
Speaker Change: Okay. Thanks best of luck.
Speaker Change: Thank you.
Speaker Change: Our next question is from Bill Peterson with Jpmorgan. Please proceed.
Bill Peterson: Yes, Hi, good morning, Lorenzo also and thanks for taking taking our questions maybe.
Speaker Change: Rounding out.
Bill Peterson: The second quarter guidance, how should we think about shipment profile.
Speaker Change: Within the guidance.
Bill Peterson: Yes, So hey, bill good morning.
Bill Peterson: Shipments should be up slightly from Q1.
Bill Peterson: From the from the $4 1 million tons, we're bringing back seat six by the time Dearborn is idled auto volume should should increase from Q1 to Q2.
Bill Peterson: So.
Bill Peterson: Slight uptick in Q2 relative to Q1.
Bill Peterson: And then mix should also be pretty similar to Q1.
Speaker Change: Okay. Thanks for that also and then I guess coming to where Tim but also maybe a broader question around goes I guess can you provide more detail on what changed given prior indications that equipment has been ordered and I guess the partnership had been arranged.
Bill Peterson: Chance that this could come back into the Fray and actually <unk>.
Bill Peterson: Fire or or is it pretty much.
Speaker Change: I'm not going to happen and then on goes directly.
Speaker Change: Maybe outside of the commentary on <unk>, how should we think about demand trends in shipments in that given that it still seems that there is some pretty long lead times across the transformer space.
Speaker Change: Yes, the demand for growth continues to be.
Speaker Change: Red Hot and that plant to be built.
Speaker Change: Somewhere.
Speaker Change: And by the partner alone.
Speaker Change: Because.
Speaker Change: What I don't like about joint ventures is that when you have a joint venture partner has I'll say, particularly in a 50 50 joint venture.
Speaker Change: And.
Speaker Change: I get built the plant alone I don't have the.
Speaker Change: The licensee in Idaho.
Speaker Change: IP <unk>.
Speaker Change: And we are not Chinese who don't steal IP for anyone so.
Speaker Change: I need a partner to work with me so.
Speaker Change: But if the partner wants to re trade deals then I'm out.
Speaker Change: The location and size for me.
Speaker Change: Important.
Speaker Change: Cause location implies throughput and.
Speaker Change: Also the size implies the number of jobs that we're going to be offering.
Speaker Change: And then with the location for my secret.
Speaker Change: Because that's where everything has started for me that said the biggest motivation for them is to sell more grain oriented electrical steels and that commitment is there.
Speaker Change: That commitment is there I am going to supply.
Speaker Change: When they go ahead by themselves with a project hopefully in weirton.
Speaker Change: For me, it's I mean, if it's weird amount if it's not weird.
Speaker Change: So, but they will get the plants they are fully commit to build a plant.
Speaker Change: And I will be a supply and then signing a long term supply agreement because they can't important anymore.
Speaker Change: Dumped grain oriented electrical steels from Japan or from Korea from China. So they have to buy from me, but I'll be right there to sell to them at.
Speaker Change: At market prices.
Speaker Change: And if they wanted to go.
Speaker Change: Utah.
Speaker Change: The plant is still available.
Speaker Change: We will transact in a very.
Speaker Change: Friendly way with a partner and have them building the plant there.
Speaker Change: They say that they are going to built in just a.
Speaker Change: Second having second thoughts about location size.
Speaker Change: So I don't believe that size as an issue because we start small and then grow well location for me is sacred.
Speaker Change: For me, it's Wilton or about I'm going to just be a supplier of grain oriented electrical steels are they have peace of mind on that.
Speaker Change: For that I'll.
Speaker Change: Hope that color helps.
Speaker Change: No.
Speaker Change: Hello, Thanks for sharing the insights Lorenzo and sell so good luck navigating this current environment we're in.
Lorenzo Goncalves: Thank you thanks Bill.
Speaker Change: Our final question is from Timna Tanners with Wolfe Research. Please proceed.
Speaker Change: Yeah, Hey, good morning.
Speaker Change: If you could walk us through any exit costs or severance costs related to the accident.
Speaker Change: Locations now, including maybe working on the other.
Speaker Change: They're ones that you called out.
Timna: Yeah, Hey, Timna.
Timna: So cash charges related to the idle in the near term are pretty minimal call it $15 million in Q2.
Timna: We will have is some noncash accounting charges in Q2.
Timna: Those should be close to call it $300 million.
Timna: And those are mostly related to impairment.
Timna: Some employment accrual cost.
Timna: And then we will have kind of ongoing.
Timna: Continued employment charges similar to what we have with weird, but.
Timna: That's kind of how you should think about it going forward.
Timna:
Timna: And then from kind of an ongoing idle costs those should also be minimal less than $5 million per annum.
Timna: Per year for all of the idle actions.
Timna: So that severance costs.
Speaker Change: Hi, there.
Timna: Okay.
Timna: Correct Yep.
Timna: Okay, and then one more if I could on the Capex comment you had for future years also coming down.
Timna: Kind of where you stand with any blast furnace re lines that I believe you've called out in the past any timing update on that please.
Timna: We will continue to rely on blast furnace.
Timna: Blast furnace unnecessary blast furnaces are here to stay like Dr. Dere to stage, a band that stake Korea Dare to stay in Europe that we stay in Brazil. They are here to stay.
Timna: And.
Timna: We are going to continue to compete against the <unk> like I said with all the idols all day.
Speaker Change: The non contributors noncore assets that were shutting down our cost to produce hot bed.
Timna: Is extremely competitive.
Timna: With any AAF mini meals. So we were approved at going forward now that I got rid of the Danone contributors. So this will be.
Timna: Feasible.
Timna: And you should expect to that.
Timna: <unk>.
Timna: We are actually.
Timna: To strengthen our position as supplier of automotive.
Timna: <unk>.
Timna: We will continue to deliver the results to the automotive industry that we delivered in the past, especially now that I have prepared the company to be able to compete in cost and on equal footing.
Timna: <unk> no core non core assets.
Timna: As long as we have a level playing field.
Timna: Of course, I don't want to allow my compete competitors to imports dumped the pig iron.
Timna: Because it's dumped.
Timna: Same way Stewart's dumped regardless dumped.
Timna: <unk> to total outlook distribution not all of the PDR.
Timna: It was just not a level playing field.
Timna: Ours is 100% our feedstocks, 100% maybe with <unk>.
Timna: We have on our <unk> plant.
Timna: That is made in USA.
Timna: <unk> made in USA, so anyway, that's the landscape.
Timna: Love competition.
Timna: Im a competitor.
Timna: And we are going to compete to win.
Speaker Change: Okay, I'm, sorry, I was just asked.
Timna: You know, Matt Blackman rely on costs.
Speaker Change: When I rely on blast furnace, we will realign blast furnace.
Speaker Change: First our Middletown will be relied.
Speaker Change: Now that the project is changing scope.
Speaker Change: Blast furnace it.
Speaker Change: Burns hub will be realigned we just rely on one in Cleveland. So we will continue to rely on blast furnaces. This is not a <unk>.
Speaker Change: Sort of question.
Speaker Change: So beyond consideration as part of the ongoing business.
Speaker Change: And the next one if you want to know when the next one and <unk> 2027.
Speaker Change: Because we operate well so we can prolong the life of our blast furnace by operating.
Speaker Change: More conservatively and Duane.
Speaker Change: <unk> Creek and things like that that are normal operation blast furnaces.
Speaker Change: And.
Speaker Change: The next one to 2007 will continue to do relaunch.
Speaker Change: Realogy is back.
Speaker Change: While our land is gone.
Speaker Change: Okay. Thank you.
Speaker Change: Youre welcome.
Speaker Change: We now have.
Speaker Change: Additional questions. Our next question is from Carlos de Alba with Morgan Stanley. Please proceed.
Speaker Change: Yes. Good morning, So a couple of questions one follow up on Capex.
Speaker Change: Any updates you on licensed by potential clients on.
Speaker Change: On what to do with the two projects that you have received strong support from.
Speaker Change: Frank grants that the government put out.
Speaker Change: Thus, we consider to maybe cancel them or delay them or at least.
Speaker Change: Do we do them in.
Speaker Change: Sure.
Speaker Change: Smooth way.
Speaker Change: Capex is sir.
Speaker Change: We serve and the second question has to do with the imports.
Speaker Change: You too.
Speaker Change: What is your sense as to the benefit of Coty All day.
Speaker Change: Yet the quarters going to zero and just keep the rate by 25% because what we're hearing is that.
Speaker Change: So on the foreign countries.
Speaker Change: Now I'm not.
Speaker Change: Are being quite aggressive in pricing.
Speaker Change: Do you have into the U S in the <unk>.
Speaker Change: They were not analyst.
Speaker Change: Thank you.
Speaker Change: Yeah, Hey, Carlos.
Speaker Change: Also here.
Speaker Change: Comment on the Capex first and then Lorenzo can talk about the tariffs but.
Speaker Change: We talked about this a little bit on the prepared remarks, but maybe it wasn't fully clear when you didn't catch it but.
Speaker Change: The deal related Capex.
Speaker Change: Sure.
Speaker Change: Stuff is still sort of influx just given negotiations, but the bottom line is that.
Speaker Change: It's going to be changed and it's going to be significantly lower than what we were talking about before.
Speaker Change: And then just some metrics around capex for for this year, we are lowering our guidance to $625 million total from our previous $700 million and.
Speaker Change: And that 2025 guide is inclusive of the $30 million that we're spending on Butler.
Speaker Change: And then we're not moving forward with work anymore, which saves us $50 million of Capex in 2025.
Speaker Change: And then when you combine everything that we discussed in the prepared remarks related to Middletown.
Speaker Change: You can conclude that 2026, capex and beyond are going to be much lower than we had already in earlier anticipated.
Lorenzo Goncalves: And then as Lorenzo mentioned, the Burns Harbor a re line.
Lorenzo Goncalves: Which we previously had slated for 2026 is now going to be in 2027. So those are the main sort of changes to our capex expectations.
Lorenzo Goncalves: Regarding the spectrum through truthfully true.
Lorenzo Goncalves: Talking about quarters, I assume that yours.
Lorenzo Goncalves: If I could.
Lorenzo Goncalves: I got what you are saying you are hearing that quarters, our Permian strata to said Carlos.
Lorenzo Goncalves: Yeah, No no I'm, sorry in our saying is that in the quarters have been removed.
Lorenzo Goncalves: A lot of foreign countries.
Lorenzo Goncalves: In the past.
Lorenzo Goncalves: Good.
Lorenzo Goncalves: And now being very aggressive because of the 75% you said before if we can make a profit but not a limit of how much.
Lorenzo Goncalves: They keep calling trainers to sell material into the wall.
Speaker Change: Yes, the biggest situation right now with dissection jewelry true is there are the countries that are selling through the tariffs.
Lorenzo Goncalves: Let's take the example of Vietnam.
Lorenzo Goncalves: Offering.
Lorenzo Goncalves: Hot rolled.
Lorenzo Goncalves: Duty paid at the Port at 700 and something.
Speaker Change: That's crazy.
Speaker Change: This is a country that doesn't even deserve a trade agreement because they did not get the underlying message of dead nutrition. The underlying message of the administration is don't dump.
Speaker Change: Because you're not going to be treated well, we should continue to bump.
Speaker Change: It's not like a 25% I can't accommodate my government will subsidize me to be able to go through the 25% that's not the message the message they stopped dumping.
Speaker Change: So I hope I really hope that the Trump administration does not negotiate a very friendly deal with Vietnam, because Vietnam is a screw up in the market as they always do.
Speaker Change: That example is Japan.
Speaker Change: Nippon steel.
Speaker Change: Selling rail through the tariffs does things have consequences.
Speaker Change: And it's not like the case of going to they're going to say you know what.
Speaker Change: The Trump administration.
Speaker Change: Now we need for rail we need.
Speaker Change: 50% or 100% tariffs because it's clear that.
Speaker Change: <unk> still has no limits they will go through the end for both 100% they will sell through the tariffs how they do that I don't know.
Speaker Change: Maybe Morgan Stanley should know how.
Speaker Change: How Japan can do that how Nippon steel can continue to be so profitable selling AD so oil prices.
Speaker Change: Whilst the Missouri.
Speaker Change: <unk> capital this market right.
Speaker Change: Just one question that I have never seen a report questioning how do they make money.
Speaker Change: Anyway.
Speaker Change: So all my problem at least not my problem anymore, because like I said dumping has consequences.
Speaker Change: I don't shut down a mill that has been operational for a couple centuries, producing radio in United States lightly.
Speaker Change: But I do what I have to do.
Speaker Change: And we did it is done.
Speaker Change: And it's a direct consequence of.
Speaker Change: Nippon steel selling rail through the tariffs despite of section 202.
Gordon: Did I answer your question Gordon.
Gordon: Yeah, Thanks, Erin and thanks for the clarification alright.
Speaker Change: Alright, Thanks Carlos.
Gordon: Okay.
Gordon: We have reached the end of our question and answer session.
Gordon: Today's conference you may disconnect your lines at this time and thank you for your participation.
Okay.
Gordon: Okay.
Gordon: Yeah.
Gordon: Okay.
Gordon: Okay.
Gordon: [music].
Gordon: Yeah.