Cleveland-Cliffs (CLF) This fall 2024 Earnings Name Transcript

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This led to the idle of our C6 blast furnace at Cleveland Works final quarter. Loads of this weak demand setting was a operate of unnatural market components at play. Amongst these components, rates of interest stored at very excessive ranges by the Federal Reserve, negatively impacted our service heart clients’ skill to purchase metal from us. And, after all, commerce distortions enabled by overseas nations supporting metal overproduction continued to be a significant downside.

Concerning commerce, the metal business has been coping with unfair competitors from overseas producers for many years. We’ve all the time been very vocal in calling out every one of many issues, significantly the dumping of artificially low-cost metal into the U.S. market, subsidies that overseas governments hand out with abandon to their metal producers, foreign money manipulation, weak environmental laws or lack of enforcement, and inadequate or non-existing punishment for dangerous actors who manipulate the worldwide market. With the Trump administration in workplace, motion is being taken and we’re beginning to see optimistic indicators forward of us.

We at Cleveland-Cliffs respect the lately introduced 25% tariffs on metal imports from all nations. These tariffs are essential to addressing the issue and we thank the Trump administration to have the braveness to implement these tariffs. Whereas america continues to be in a internet quick place on metal, the most important exporters of metal into the U.S. are all responsible of overcapacity and overproduction.

To make issues worse, these overseas overproducers of metal are all extra carbon intensive than every one of many U.S. metal makers, which means that they overproduce metal and CO2 after which put the metal on a vessel that emits much more CO2. Cleveland-Cliffs isn’t relying on imported inputs and we don’t depend on overseas provide chains that may be disrupted in a single day. The tariffs will penalize the overseas rivals who’ve been taking part in by a special algorithm whereas strengthening the home producers who really put money into American staff, American manufacturing and American provide chains.

The commerce angle is not simply essential for metal however for completed items as properly. For the primary time in historical past, 2024 was the yr when gross sales of imported automobiles in america surpassed gross sales of domestically made automobiles. Let me repeat this level another time. In 2024, the variety of imported automobiles bought to customers was larger than the variety of home produced automobiles bought in america.

That’s precisely why tariffs and a powerful industrial coverage are obligatory to guard and energy the American manufacturing base as a substitute of letting it proceed to erode. We additionally respect that the current tariff announcement consists of downstream merchandise containing metal, and that ought to profit our shoppers in automotive and in different sectors. The tariffs may also profit our newly acquired Stelco. That is proper.

Regardless of what some may assume, the perfect monetary yr for Stelco within the earlier decade was 2018, when 25% tariffs on Canadian metal imports have been in place. Stelco sells greater than half of its output in Canada and we compete with different Canadian suppliers who ship the fabric into america. The Canadian metal market pricing displays the U.S. market pricing.

So any ensuing rise in pricing will move on to Stelco as properly on prime of the profit we’re seeing from the weakening Canadian greenback. It has now been almost 4 months of our possession of Stelco. I’ll remind everybody that our acquisition course of and assessment by the DOJ went by way of seamlessly. The operational transition has been clean.

Lake Erie Works stays best-in-class from a value construction standpoint. A big portion of our anticipated synergies have already been set in movement. And we’re figuring out extra methods to maximise worth from the mixture. One of the best instance is directing order flows to maximise all of our mills strengths.

This implies we are able to load Lake Erie with the grids they make finest and transition a number of the extra refined grades and orders to our U.S. mills. The worth we now have discovered right here will seemingly signify many of the remaining synergies. We anticipate to have the $120 million in synergies set in movement earlier than the top of this yr.

As for the present state of play at Cliffs generally, we proceed to handle prices, optimize operations, and keep our monetary flexibility. We’ve been by way of cycles earlier than. We all know precisely what to do. We proceed to take pleasure in full assist from our traders and we proved that after once more with the lately issued senior unsecured notes, a deal that was oversubscribed and was priced in just a few hours after launching.

And as we now have already defined, the market is actually pointing in our favor. Step one is the tightening of the scrap market. We’ve been saying for years that the continued push towards EAFs would drive the scrap worth larger. That is precisely what’s taking place now.

Prime scrap provide is inelastic and demand retains rising. In simply two months, we now have seen prime costs transfer up $70 per gross ton. In the meantime, Cleveland-Cliffs is sitting precisely the place we must be. Our ROI-based operations give us value stability, high quality consistency and provide safety.

This can be a long-term benefit that we are going to solely get stronger over time. Our order guide is in a a lot stronger place to start out 2025 with a major uptick in demand. The enhancements in automotive have been particularly encouraging with elevated volumes from each present and new applications. We’re seeing our greatest pull charges since early final yr, a transparent signal that we’re recovering market share from the rivals that gave away worth.

These rivals cannot win on high quality or service, so that they gave away the farm on pricing and at the moment are struggling to ship on efficiency. Regardless of how a lot competitors tries to low-ball pricing on this market, high quality and supply efficiency all the time win in the long run. This optimistic development, mixed with higher demand in different core segments, places us in a fantastic place for the yr forward. After spending the complete second half of 2024 with sub $700 HRC pricing, we’re lastly beginning to see the lengthy overdue bounce.

And we at the moment are even higher geared up to journey this upside than earlier than with Stelco and it is primarily non-automotive guide of enterprise within the combine, leading to a smaller proportion of fastened worth contracts for our complete Cleveland-Cliffs enterprise as an entire. And let’s not neglect about security. We had an excellent security file in 2024 and that’s the direct results of our nice relationship with our workforce. We take security critically and the unions do too.

We reported a full yr 2024 complete reportable incident fee or variety of accidents per 200,000 hours labored up 0.9. And in contrast to another firms on this business, we rely everybody inside our fence line workers, contractors, everybody. Lastly, earlier than turning it over to Celso to undergo our monetary outcomes, I’ll rapidly deal with a subject I am positive a lot of you wish to hear about. Given ongoing litigation, we is not going to be taking questions concerning U.S.

Metal or Nippon Metal at this time. However our place is well-known and our conviction has by no means modified. We’ve been steadfast in our opinion that U.S. Metal’s introduced sale to Nippon Metal would by no means shut.

I mentioned that in December 2023, then in 2024, and I am repeating that in 2025. Simply return to our convention name transcripts and public statements, and you will see that we now have been accurately predicting this final result for over a yr. The truth is that the deal has been blocked by america of America on severe nationwide safety issues that can not be mitigated. The CFIUS committee rightfully acknowledged this and particularly famous that permitting Nippon Metal, an organization absolutely financed by the Japanese banking system and their near-zero rates of interest, to turn out to be a significant home participant within the U.S.

would negatively impression the way forward for the complete American metal business and that will have an effect on a number of states of the union within the Midwest and past. President Trump has mentioned a lot of instances that Nippon Metal is an unacceptable purchaser for a majority stake in U.S. metal. That mentioned, no state of affairs is so dangerous that it can not turn out to be loads worse.

For Nippon Metal, it is time to pack and go earlier than their epic M&A catastrophe turns into a severe diplomatic challenge. As President Trump says, let’s have a look at what occurs. With that, I will flip the decision over to Celso.

Celso Goncalves — Government Vice President, Chief Monetary Officer

Good morning, everybody. Transferring on to our outcomes for This fall and full-year 2024. Our monetary efficiency final yr and significantly within the fourth quarter mirrored the troublesome market circumstances that Lourenco described. For the fourth quarter, we posted an $81 million adjusted EBITDA loss, which was primarily the results of weaker automotive demand and the impression of lagged pricing.

Direct shipments to automotive within the fourth quarter have been our lowest because the pandemic and commodity pricing for the final six months of 2024 was the bottom six-month stretch since 2020. On condition that over 90% of our shipments are impacted by both automotive pull charges or commodity metal pricing, these multi-year lows drove a unfavourable impression in This fall. Fortuitously, each of those conditions have already begun to enhance right here into 2025 in comparison with 2024, identical to issues improved rapidly in 2021 relative to 2020 just a few years in the past. As Lourenco detailed, the automotive order guide has been remarkably wholesome to start out 2025, due largely to market share restoration and commodity metal costs quickly on the rise.

Consequently, we view the fourth quarter of 2024 because the trough in our quarterly profitability as we gear up for a a lot improved 2025. To be clear, with the inclusion of Stelco, for each $100 improve within the HRC worth on an annual foundation, our yearly income would improve roughly $1 billion, all issues equal. And after factoring modifications in revenue sharing and historic scrap correlations, this $1 billion impression would largely move instantly all the way down to EBITDA. So should you maintain all issues equal and look to the HRC curve proper now for 2025, you’ll be able to fairly simply calculate a vastly improved adjusted EBITDA and money move for 2025, particularly after including one other 2.6 million tons from our Canadian operations.

Complete shipments in This fall have been 3.8 million tons, which was decrease than Q3 as a result of continued idling of the C6 furnace, seasonally weaker demand and solely having Stelco for 2 months of the quarter. Although the C6 furnace stays idled, our Q1 cargo degree ought to enhance again above the 4 million ton mark once more as a result of improved demand, higher utilizations at our U.S. mills and having Stelco for a full quarter. This fall worth realization of $976 per internet ton appeared like a pointy fall of $70 per internet ton from the earlier quarter, however this was principally pushed by the incorporation of Stelco and their cheaper price combine.

The inclusion of Stelco into our outcomes clearly helped decrease our weighted common unit prices, with a discount of roughly $15 per internet ton in comparison with the prior quarter. Although we weren’t working at full capability with the C6 furnace down, we proceed to cut back value throughout the board. At the moment final yr, we guided that our unit metal value could be down $30 per ton yr over yr. That is precisely what we achieved, even within the face of all of the headwinds we noticed in 2024.

Now with Stelco within the combine, we anticipate our common value to say no one other $40 per internet ton in 2025. The fee benefit at Stelco is properly documented and the current weakening within the Canadian greenback has solely fortified that benefit even additional. It isn’t simply on the operational aspect both, taking a look at our SG&A for 2024, we have been down almost $100 million or 16% from the prior yr, due primarily to decrease incentive compensation. From a stability sheet perspective, we stay in a remarkably wholesome liquidity place following our newest capital elevate, the place we changed safe ABL borrowings with long-term unsecured notes.

As of at this time, we sit right here with $3 billion in liquidity and all of our secured debt capability stays intact. Following the acquisition and the money use within the fourth quarter, our leverage sits above our 2.5 instances goal on a internet debt-to-EBITDA foundation. And as we now have achieved traditionally, that pivots us instantly into debt discount mode. When you take a look at Cliffs’ current historical past, we now have a confirmed observe file of levering as much as make strategic acquisitions and subsequently paying down debt rapidly.

AK Metal, AM USA, after which FPT, it was the identical story every time. It is going to be the identical story with Stelco. We are going to use 100% of our free money move going ahead towards debt discount till that focus on is reached. The hurdle isn’t even fairly excessive as excessive this time both.

In comparison with the place we stood after finishing the AK and AM USA acquisitions, our leverage is definitely already in significantly better place. On prime of that, on the time of these acquisitions, our internet pension and OPEB liabilities have been north of $4 billion. These liabilities have been almost eradicated, down by 90% from over $4 billion all the way down to solely $400 million as of the top of 2024. This fall was a quite heavy interval of money use, each from the weak outcomes in addition to the buildup of stock and the discharge of payables.

This stock construct in This fall is primarily a results of uncooked supplies, significantly iron ore pellets, a state of affairs that we can rectify right here in 2025. This construct units us up properly to quickly reply to the improved demand we’re seeing to this point this yr. We may also have a lot decrease capital expenditures in 2025 on a professional forma foundation, significantly from a sustaining standpoint as we now have accomplished our main reinvestment cycle. Fortuitously, as a single mill operation, the Stelco property have been very properly capitalized and we shouldn’t have any catch-up capex necessities like we did following the AM USA acquisition, for instance.

Our complete capex is predicted to be $700 million in 2025 in comparison with $800 million in 2024 once you embrace Stelco. 2024 represented the cyclical world that everyone knows as a metal firm. I consider within the midst of our weakening outcomes with our concentrate on value management and our strategic M&A with Stelco, we positioned ourselves very properly for a considerably improved 2025, particularly as the broader market improves. I will now flip the decision again over to Lourenco for his closing statements.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks, Celso. With 2024 behind us, we’re able to reap the advantages of this new period in America. Our concentrate on manufacturing inside america lastly standing as much as unfair competitors and never permitting ourselves to be taken benefit of. These efforts are already exhibiting up in our order guide and our pricing.

The golden age of American manufacturing is coming and Cleveland-Cliffs, a proud American ownered and operated metal firm producing metal from Virgin Islands from Michigan and Minnesota is on the basis of this effort, able to assist home manufacturing and American prosperity. With that, I will flip it to the operator for Q&A. Kevin?

Operator

Thanks, sir. [Operator instructions] Our first query is coming from Martin Englert from Seaport Analysis Companions. Your line is now dwell.

Martin Englert — Analyst

Hiya. Good morning, everybody.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Good morning, Martin.

Martin Englert — Analyst

I respect the time. Subsequent week the U.S. could transfer ahead with 25% import tariffs with Canada and Mexico. This might be along with metal tariffs already pursued I consider.

Are you able to talk about how Cliffs navigates the evolving tariff setting, its implications on worth and demand? And what the technique is for the lately acquired Stelco asset? And is there an choice to maneuver slabs quite than end metal from Stelco into the US?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure. Look, Stelco is a small a part of the complete image. And the complete image will profit extraordinarily properly from no matter situation you design, Martin, so far as tariffs. Tariffs are obligatory.

Tariffs are on the basis of what President Trump and Secretary of Commerce Howard Lutnick are planning to implement on this nation. And we absolutely assist that. That mentioned, Stelco, like we defined throughout our ready remarks, Stelco primarily guide of enterprise is in Canada. And we consider that by utilizing our property supply of the border to execute on orders which can be coming from American shoppers will largely mitigate the unfavourable impression of any tariffs on Stelco.

So lengthy story quick, we consider that any is small unfavourable impression on Stelco, if any, which I nonetheless do not consider that they are going to be — that would be the case might be largely offset and surpassed by the advantages to the remainder of the footprint which can be loads larger than Stelco individually. One other level that I wish to another time name consideration to your consideration and the eye of our traders, the perfect yr for Stelco was 2018. And that was simply after when President Trump throughout his first mandate carried out tariffs. So we absolutely anticipate that would be the case once more.

Martin Englert — Analyst

That is going again a methods, however enthusiastic about simply the mechanics of reporting with tariffs in place in Stelco and adjusted EBITDA, would you propose to report tariffs included or excluded from adjusted EBITDA?

Laurenco Goncalves — Chairman, President and Chief Government Officer

We’ll all the time report our outcomes as they’re. And we don’t even know how one can do what we now have simply recommended. It was not even a part of our line of thought.

Martin Englert — Analyst

OK. Sure, simply double checking. I respect that. If I may another on fastened contracts.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Go forward.

Martin Englert — Analyst

On fastened contracts for flat-rolled merchandise, how did pricing change for the January resets? After which simply up to date sensitivity for steelmaking ASPs taking into consideration these contract resets, the inclusion of Stelco relative to modifications in U.S. spot market costs?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure. Stelco doesn’t take part on that as a result of the guide of enterprise is principally spot. I’d say spot. We have no contracts to talk of in Stelco.

It is all spot and that is a fantastic factor within the present pricing setting. So for the remainder of Cliffs, the fastened contracts are going — negotiations are going extraordinarily properly, extraordinarily properly amongst different issues as a result of we had a really uncommon 2024 during which two home rivals determined to actually dump from the within. And in some conditions, we elected to not play that sport. And one in all our then massive shoppers grew to become extraordinarily weak and they’re not a significant participant, not solely due to us, however due to different issues.

So however we helped them turn out to be weaker. Even this consumer is coming again. All people else is coming again and coming again rapidly. So the situation is the precisely reverse of what we had in 2024 after they had a low worth excessive fueling the whole lot.

At this level, actuality is sinking in and nothing like having a authorities that’s dedicated to carry manufacturing again throughout the borders of america. So all people is coming to get the home provider. The home provider is Cleveland-Cliffs.

Martin Englert — Analyst

I respect all the colour and good luck within the 1Q right here. Thanks.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks, sir.

Operator

Thanks. Subsequent query is coming from Nick Giles from B. Riley. Your line is now dwell.

Nick Giles — B. Riley Monetary — Analyst

Thanks, operator, and good morning, everybody. Lourenco and Celso, I respect all of the background in your earlier debt paydown. I used to be curious that if we have been to see the fairness stay underneath stress, should you may think about pausing paydown for any share repurchases? After which my second query was, do you’ve a goal degree of internet debt in thoughts? Thanks very a lot.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Effectively, to start with, Nick, congrats in your promotion. And I’ll miss Lucas Pipes. However I do know that Lucas went to a spot that I am positive that he’ll turn out to be an enormous shareholder of Cleveland-Cliffs. In order that’s a fantastic factor for Lucas, and I am positive that might be a fantastic factor for B.

Riley. And I hope it is going to be nice for you as properly, Nick. So far as that, let me begin from the targets. I feel, Celso talked about that we’re sustaining our goal of two level instances EBITDA as our goal.

And you are going to say, oh, however we’re a lot larger proper now. Effectively, we’re a lot decrease than once we — after we acquired ArcelorMittal USA for instance. So we all know how one can do this stuff. M&A isn’t for vacationers.

M&A is for those that perceive how one can do M&A, timing, how one can execute and in the course of the backlash of getting a few quarters just like the This fall that you just noticed. We all know what we’re doing. We ready in This fall to a fantastic 2025. So we predict a very completely different yr and we’re enduring the dangerous outcomes and are going to emerge from that time.

So far as shopping for again inventory, the reply is a powerful no. At this level, there may be completely no different factor that we will do besides paying down debt. Paying down debt is the factor that we are going to proceed to construct the worth of our fairness. So the reply is not any.

Nick Giles — B. Riley Monetary — Analyst

Lourenco, that is good to listen to and I actually respect the sort of feedback. I am positive Lucas would say the identical. My subsequent query was, curious how we must always take into consideration quantity cadence over the course of the yr? And the way a lot of your value steerage may very well be predicated on better fastened value absorption versus decrease uncooked materials prices?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure, I will let Celso reply that one, Nick, please.

Celso Goncalves — Government Vice President, Chief Monetary Officer

Sure. Hey, Nick. Simply to echo Lourenco’s feedback, congrats once more. In order we glance towards the remainder of 2025 and I wish to really deal with a query that Martin had requested beforehand because it pertains to ASPs that I do not suppose we absolutely answered.

Following the acquisition of Stelco, we will have a smaller proportion of our quantity underneath fastened costs. In order we glance towards the remainder of this yr, solely about 30% to 35% of our volumes are underneath fastened pricing. After which you’ve about 20% on a CRU month lag, name it 10% on a two-month lag for slabs and 5% on 1 / 4 lag. So I simply wished to ensure that was addressed as properly.

After which from a value standpoint, we guided to a $40 a ton discount for the total yr. And you are going to see that materialize extra within the again half of the yr than right here in Q1, however it’ll be a consequence of the favorable value combine from the Stelco acquisition, optimization of the built-in footprint and clearing of sort of larger value stock. However that is what we’re guiding for the total yr.

Nick Giles — B. Riley Monetary — Analyst

Thanks a lot, Celso. And simply to make clear, in order that these value reductions wouldn’t embrace potential of bringing C6 again on-line?

Celso Goncalves — Government Vice President, Chief Monetary Officer

Appropriate. Sure, we’re not bringing C6 again at this level.

Nick Giles — B. Riley Monetary — Analyst

Acquired it. Effectively, Lourenco, Celso, thanks a lot for all of your feedback and continued better of luck.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks.

Operator

Thanks. Subsequent query is coming from Philip Gibbs from KeyBanc Capital Markets. Your line is now dwell.

Philip Gibbs — Analyst

Hey. Good morning.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Good morning, Phil.

Philip Gibbs — Analyst

I wish to discuss somewhat bit in regards to the capital expenditures this yr and into the long run. I do know you have obtained some fairly materials tasks that you just’re engaged on over the following few years. So I do not wish to lose sight of the long run evolution with Middletown and Butler. Possibly give us some ideas on the place these tasks stand and timelines and the way you are enthusiastic about these proper now?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Positive. Our capex for this yr may be very clear, $500 million for the legacy Cleveland-Cliffs footprint, $100 million for the Stelco footprint, that is most likely within the excessive aspect, regardless that that is our quantity because the second that we dedicated of the acquisition of Stelco. However this $100 million may very well be some financial savings right here. I am undecided if we will — it is going to be essential to spend the complete $100 million on this yr, however that is the quantity we now have in our books proper now.

And one other $100 million for the three tasks, Middletown, Butler and Weirton. And that is just about what we’re planning to spend this yr. So far as subsequent yr, it’s going to all rely on how issues will go, significantly within the Middletown one. I consider that Weirton goes quick and goes in the precise path.

Butler, the identical factor, the modernization of the furnaces at Butler. And you understand how essential grain-oriented electrical steels is for us. So we’ll proceed to spend that cash. Within the Middletown challenge, it is all about what is going on to occur subsequent with the efforts to provide hydrogen within the space.

That challenge can turn out to be extra towards pure gasoline, which for me is extra snug as a result of it is one thing that we dominate, significantly a direct discount plant function underneath pure — utilizing pure gasoline as reductant. That is precisely what we’re have in Toledo. In order that’s the one caveat that I’ve for that particular challenge. However it’s so far-off.

We’ve a lot time to proceed to debate with the brand new Division of Power and we’ll go from there. So we’re in good condition in all three.

Philip Gibbs — Analyst

After which on the Weirton challenge for electrical steels and associated gear, I am unable to bear in mind, do you’ve a associate there now?

Laurenco Goncalves — Chairman, President and Chief Government Officer

We do.

Philip Gibbs — Analyst

I believed that there was some dialogue of that. OK. You do?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure, we do. We do. We do and we purchase gear. So on the proper time, we’ll assessment all of the names and the whole lot.

However the level is, it is on time and the orders are in place and we’re transferring very, very expeditiously to start out producing transformers in Weirton and one yr for now.

Philip Gibbs — Analyst

Thanks. After which my final query is simply on some — possibly some clarification simply to start out the yr. It feels like you should have somewhat bit higher quantity than the fourth quarter, significantly with the added month of Stelco. However then it feels like within the legacy enterprise, you are additionally swapping an honest quantity of tons, name it service heart for extra direct automotive as you have regained some share after which have some new applications kicking in and a few respectable demand.

So placing that every one collectively, do you even have, respecting that there is additionally lags, however do you’ve larger pricing combine within the first quarter than you do within the fourth? Thanks.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure, we could have a better worth combine since you talked about the principle motive, we will have extra automotive within the combine. However make no mistake, total, once you on the finish of 2025, Phil, once you examine 2025 with, for instance, 2021, you will see a greater 2025 compared to 2021 as a result of total we’re going to have the ability to profit from worth improve extra instantaneously than we had in that yr. As a result of on that yr, we’re overloaded with automotive. At the moment, we aren’t.

So the enterprise that is coming again to us is primarily enterprise that can profit from the upper costs instantly as a substitute of getting a lag that’s tied to a contract with automotive. Really, a few rivals of Cleveland-Cliffs could have this downside and they’ll have this downside with a worth that is actually low that the worth that they dedicated final yr that I didn’t settle for. So 2024 was theirs. 2025 might be ours.

Philip Gibbs — Analyst

Sure. Thanks a lot.

Celso Goncalves — Government Vice President, Chief Monetary Officer

So possibly so as to add some numbers to that. No, simply to place some numbers round it, for Q1 ASPs, we’re anticipating to be up not less than $10 a ton from This fall. Clearly, the month-to-month lag contracts might be barely higher. The quarterly lag contracts are going to be challenged nonetheless, however you are going to see these elevated auto shipments from This fall to Q1 may also profit pricing.

Philip Gibbs — Analyst

Thanks a lot. Admire the clarification.

Operator

Thanks. Subsequent query is coming from Chris LaFemina from Jefferies. Your line is now dwell.

Chris LaFemina — Analyst

Thanks, operator. Hey, guys. Thanks for taking my query. Hey, Lourenco, simply first, rapidly.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Hello, Chris.

Chris LaFemina — Analyst

How are you doing? Simply rapidly on the metal markets. I imply, clearly, costs have actually begun to maneuver larger and also you talked about your order books getting higher. And we now have the upcoming impression of tariffs, which might clearly be good for the medium to long run for you. However I am simply questioning about sort of the cadence of demand.

And is it potential that there is been some demand that is being pulled ahead forward of tariffs? And possibly after tariffs kick-in, we get a interval the place we now have type of consolidation earlier than the costs begin to transfer larger or do you suppose that is extra a mirrored image of demand actually recovering after a really weak 2024? That is my first query.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure, I feel that may be a mixture of the whole lot, however demand is coming again — as 2025 progresses, Chris, you will see increasingly home consumption for the easy incontrovertible fact that they don’t seem to be going to have the ability to import anymore. While you put tariffs on metal on each single nation and when you do not settle for exceptions, you do not create mechanisms for individuals to begin to sport the system by submitting exceptions. And extra importantly, once we shut down the door in Mexico that brings metal by way of Mexico into america and destroys {the marketplace} then we now have a fantastic mixture to enhance and to extend demand. After all, within the short-term, there might be sort of a rearrangement of the availability chains.

However look no one can say that it is environment friendly to love the CEO of OneSteel firm mentioned some elements transfer throughout the border between america and Mexico seven instances. After which they recall that effectivity. My goodness, that is silly with all due respect. So let’s produce the whole lot right here in america and get issues again the place they belong.

And do not forget, for a rustic like Mexico, tariffs might be stacked. So it is 25% plus 25% makes up 50%. So for those that relied in Mexico, time to get one other factor to do.

Chris LaFemina — Analyst

Nice. Thanks for that. After which, Celso, simply on the working capital construct within the first quarter, would you anticipate that to start to reverse within the second quarter? So ought to we begin to have money inflows by way of the remainder of the yr from working capital? And I am questioning if we’d see over the course of the yr, the online money outflow from working capital within the first quarter be greater than offset over the course of the yr? So in different phrases, you get probably for the total yr, you get a profit from working capital quite than the draw that they had within the first quarter?

Celso Goncalves — Government Vice President, Chief Monetary Officer

Sure, that is proper. You nailed it. The working capital construct in This fall was to gear up for a a lot improved 2025. It was principally all stock pushed, significantly in uncooked supplies, pellets and coke.

So we’ll be capable to work by way of all this in 2025.

Chris LaFemina — Analyst

OK. Nice. Thanks, guys and good luck.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Chris, only one thing more on capital — on working capital. I may have shut down Minnesota not less than one mine or mine and a half and produce fewer pallets in This fall and present a greater quantity and no one might be saying, oh, there is a money burn and this and that. I did not try this. I produced the pellets.

Are you aware why? As a result of I had full confidence that President Trump would preserve the promise that he made. Promise made, promise stored. And tariffs are coming, demand is coming and I’ve the pellets. Keep in mind, there’s a winter between the pellets and the consuming mills.

I’ve the pellets able to go. So we’re prepared for these tariffs to be carried out. We’re able to care for the market. We’re not going to justify, we do not have feedstock, we do not have scrap, we do not have pellets, we do not have individuals.

We’ve the whole lot. We produced much less tons, however the workers are there and we’re able to go. And that is what you do if you end up managing for the long run and managing for the close to future. So that is the working capital factor that I would love you to know.

And please make your mannequin display that as a result of that is going to occur all through 2025.

Chris LaFemina — Analyst

That is smart. Thanks, Lourenco. Good luck.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks.

Operator

Thanks. Subsequent query at this time is coming from the road of Carlos De Alba from Morgan Stanley. Your line is now dwell.

Carlos De Alba — Analyst

Sure. Thanks very a lot. Good morning. Celso, simply to make clear on the working capital, do you anticipate working capital to generate money in Q1 or to devour money in Q1? So I believed that after the rise within the fourth quarter, you would scale back working capital within the first quarter.

Celso Goncalves — Government Vice President, Chief Monetary Officer

Sure, it is going to be comparatively impartial in Q1, Carlos. However you may begin to see the profit in subsequent quarters.

Carlos De Alba — Analyst

Proper. OK, nice. And a few extra questions. One is, on the auto worth for 2025, any extra colour that you could provide? Do you anticipate costs to be flattish, to maneuver larger, transfer down, clearly recognizing that now the fastened costs total signify a much less proportion of your total volumes?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure, the complete image of automotive will signify much less of a proportion of the general quantity and that is a internet optimistic for us. However our costs needed to go barely down in some renegotiations, however not even near what my competitors was locking in for 2024. So after I say it is barely down, say it is barely down, however not the absurd that the home dumping that I needed to compete in opposition to in 2024.

Carlos De Alba — Analyst

All proper. Thanks. And so trying on the stability sheet and your working capital and money move era, clearly the precedence is to carry down debt. Any and look I perceive that you’re very optimistic on 2025, issues are enhancing, costs are up, your volumes are going to be larger, your prices are coming down.

And is the elephant on the room, I’ll simply deal with it. Is there a risk of an fairness issuance or at this time limit, you’re feeling that isn’t wanted?

Laurenco Goncalves — Chairman, President and Chief Government Officer

I often challenge fairness when this — the fairness — the worth per share is excessive. When the worth per share is low, I challenge unsecured debt as a result of I do know that I can do it and I can do it in a few hours. Celso did that challenge with out even my assist. And we now have a following and we respect our bondholders.

They perceive our firm extraordinarily properly and so they know what we’re doing. So the reply is not any. We’re not going to challenge fairness. We’re not going to do something.

We did — we issued unsecured debt to enlarge our liquidity. And should you take a look at the quantity, you may see that what we did on this final issuance was simply offsetting using money that we put to make use of to amass Stelco. So it is simply a part of the M&A method and the whole lot goes accordingly to plan, together with the truth that we knew that in 2025, we might have a brand new starting for manufacturing in america and we absolutely assist that and we’ll proceed to work to make this factor occur for the nation and for Cliffs and for our shareholders.

Celso Goncalves — Government Vice President, Chief Monetary Officer

Sure, Carlos, there is no such thing as a want to boost fairness or to challenge fairness at the moment. We have been very proactive on the stability sheet on the capital construction. We did these unsecured offers to boost liquidity. Now we now have all of the liquidity that we want.

We’ve secured capability as properly. And much more importantly, we now have a capital construction that is designed — that is pre-designed for debt discount. We’ve the ABL, that is sort of the No. 1 goal of free money move going ahead.

However we even have — our bonds are properly staggered in a approach that they turn out to be callable with no penalty beginning this yr. So even after we have paid down the complete ABL, we now have these completely different tranches of bonds that we are able to begin to assault. So it is debt discount from free money move era with no fairness elevate.

Laurenco Goncalves — Chairman, President and Chief Government Officer

And once more, should you take a look at the stack, you are going to see that the capital construction was put in place that approach by design. So we knew that we might begin having tranches of our bonds able to be paid down or paid off with money move era beginning 2025.

Carlos De Alba — Analyst

OK. And understanding that you could be not reply this query primarily based on what you mentioned earlier within the name and I respect that. I’ll respect that clearly. And the stability sheet, is there a limitation to pursue one other acquisition as you’ve highlighted up to now?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Let’s have a look at what occurs. There is a man that claims that loads. When he says that, those which can be within the receiving finish, they often they know that they are in a nasty spot. Let’s have a look at what occurs.

Celso Goncalves — Government Vice President, Chief Monetary Officer

However to reply your query, Carlos, the stability sheet isn’t a constraint. We have confirmed that we are able to elevate capital rapidly when wanted. So the stability sheet isn’t the constraint.

Carlos De Alba — Analyst

All proper. Wonderful. Effectively, thanks very a lot.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks.

Operator

Thanks. Subsequent query is coming from Lawson Winder from Financial institution of America. Your line is now dwell.

Lawson Winder — Analyst

Thanks, operator, and good morning, Lourenco and Celso. Good to listen to from you each. Celso, you talked about that bringing the Cleveland Works No. 6 again on-line isn’t one thing that you just’re contemplating in the intervening time.

Might you possibly communicate to the circumstances for a possible restart? And the way you concentrate on probably doing that?

Laurenco Goncalves — Chairman, President and Chief Government Officer

It is Lourenco right here Lawson. No, we’re not going to speak about that. There isn’t any topic to debate on C6 proper now. It is idle, indefinite idle and it’ll stay particular idle till we’ll determine in any other case.

Lawson Winder — Analyst

OK, excellent. That is very useful. With the synergy, you famous, the Stelco synergies that as you famous $120 million to be achieved by year-end ’25 and also you’re on observe to take action. You talked about potential upside to that.

Is there a time at which we may get a way of what a few of that upside could be? And will a few of that probably be realized even this yr earlier than year-end?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Celso, take that.

Celso Goncalves — Government Vice President, Chief Monetary Officer

Sure. I imply because it pertains to the Stelco synergies, Lawson, we really feel extraordinarily assured in with the ability to overachieve that $120 million that we outlined. I feel we have given the breakdown of that. However should you simply take a look at what we have achieved with our different acquisitions, we now have a observe file of overachieving these synergies.

A big portion of that $120 million has already been set in movement by the highest administration departures, sort of duplicative board bills, audit bills and issues like that. However we proceed to establish increasingly distinctive methods to maximise worth from this mix and we’ll be updating you guys over time. However for now we really feel extraordinarily assured in regards to the $120 million that we initially outlined.

Lawson Winder — Analyst

OK, unbelievable. And if I may ask about your Zanesville non-grain oriented line that began up mid final yr, is that now just about absolutely ramped up? And what are you seeing when it comes to pricing?

Laurenco Goncalves — Chairman, President and Chief Government Officer

You mentioned non-grain oriented. Electrical steels, is that what you are asking?

Lawson Winder — Analyst

Sure, {the electrical} metal line, precisely the one which was commissioned final summer time.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure. Look, we made a small investments in our Zanesville plant that finishes electrical steels to extend our capability of non-oriented electrical steels of fifty,000 tons a yr. That extra funding paid off. We proceed to ship our non-oriented electrical steels after which we proceed to promote our non-oriented electrical steels.

Our rivals, two of our rivals making massive investments to provide much more non-oriented electrical steels as a result of they’re believers in electrical automobiles and the whole electrical automobiles will change all ICE automobiles or inside combustion engines automobiles in a brief time frame. Good luck with that. My aim with electrical steels has all the time been to provide transformers and transformers grain-oriented electrical steels. That one, it is solely Cliffs and also you proceed to be solely Cliffs for the foreseeable future.

There’s loads of room for different suppliers to provide grain-oriented electrical steels, however you might want to have one factor that individuals discuss loosely about, however typically there’s nothing behind. It is referred to as know-how. We’ve the know-how. We produce the ARMCO grain-oriented electrical steels as of at this time, and that is the best-selling grain-oriented electrical steels in the complete world.

So we’re good at that. We’ve no competitors. Competitors could be welcome. I’m pleased with competitors.

Come to compete with us. There is a market right here for grain-oriented electrical steels. We’ve to provide it. To this point it is solely Cliffs and we’re joyful serving the market.

So joyful that now we will produce transformers ourselves.

Lawson Winder — Analyst

OK. Thanks each on your feedback.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks.

Operator

Thanks. Subsequent query is coming from Mike Harris from Goldman Sachs. Your line is now dwell.

Mike Harris — Goldman Sachs — Analyst

Thanks and good morning.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Good morning.

Mike Harris — Goldman Sachs — Analyst

Simply wished to take a look at — if we take a look at the anticipated value reductions in 2025 and what you have achieved over the previous two years, I imply, that is about $150 per ton. I used to be simply curious has that moved you additional to the left on the fee curve by $150 per ton or was a few of that maybe recovering from any drift you might have skilled to the precise of value curve?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Look, after all, this quantity strikes us to the left of the fee curve. However the level with the fee curve is that we aren’t an organization that is designed to function at low capability. We aren’t an organization designed to function at low-grade steels. We’re designed to provide high-end steels.

It is like when you have a automotive and also you wish to make some extra cash and you are going to drive for Uber, it is higher to purchase a Camry as a substitute of shopping for a Ferrari. It would not work as an Uber. We’re a Ferrari. We’re good when the financial system is working, when the tremendous energy is producing issues domestically and when you do not enable others come to destroy our market by destroying our pricing.

And I do know there is a era right here that solely is aware of mini mills. Welcome to the world of built-in metal firms. Sure, as you’re employed for Goldman Sachs, proper?

Mike Harris — Goldman Sachs — Analyst

Sure.

Laurenco Goncalves — Chairman, President and Chief Government Officer

In order you could know, there may be an curiosity for a world firm to amass built-in property in america. Have you ever ever requested you why? Why? It is as a result of built-in metal property have a spot in economies which can be practical and that is what we now have now in america. So await us in 2025 and we will see what a vibrant financial system, manufacturing financial system fueled by home metal manufacturing can do when you’ve the precise property to assist that sort of effort. And that is Cleveland-Cliffs and the nation I am speaking about is United States.

Mike Harris — Goldman Sachs — Analyst

OK. That is useful colour. And simply on capability utilization, are you able to assist us with the place you’re proper now and sort of the way you see that altering in 2025 given present demand visibility?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure, we’re nonetheless transferring, transitioning from lackluster 2024, during which like I mentioned in my ready remarks, extra automobiles, imported automobiles bought in america than automobiles produced in america. In order that’s an aberration. That is prison. So we’re fixing that.

And as quickly as we now have increasingly automobiles bought in america which can be produced in america, we are the ones supplying the metal for that. It is coming in 2025. Our C6 blast furnace is down and we will preserve it down for now. So capability utilization proportion, I do not even understand how this stuff are calculated.

That is the image that I would like to inform. We’ve loads of capability to provide extra in our downstream strains and we’re very pleased with the truth that we’re self-sufficient in feedstock and our provide chains are all home, managed by Cleveland-Cliffs.

Mike Harris — Goldman Sachs — Analyst

OK. Thank you numerous.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks.

Operator

Thanks. Subsequent query at this time is coming from Tristan Gresser from BNP Paribas Exane. Your line is now dwell.

Tristan Gresser — BNP Paribas Exane — Analyst

Hello. Thanks for taking my questions. I’ve two. First, are you able to talk about a bit your view on the potential dilutions of tariffs? I imply, if we take a look at 2018 and 2002, we had this sample of increase and bust tariffs in Q1 and Q2 rally after which paying for H2.

So I might prefer to have your view on why do you suppose it is completely different this time? And likewise you touched on the tariffs on the downstream aspect, how a lot of that of a profit may very well be for you? I might begin there. Thanks.

Laurenco Goncalves — Chairman, President and Chief Government Officer

I did not get the second half, however I will reply to the primary half, you then repeat your second half. This time across the administration and I heard that from the many of the secretary, the administration isn’t planning to toy with exceptions. The exclusions, exceptions are all the time the start of the top. So there’s numerous dedication proper now to not enable for the errors of the previous.

And the exclusions course of took an enormous enhance when President Biden took workplace. It was the time of the exclusions. He stored it, the tariffs, however they stored Q2 in place. However with so many exceptions that the holes compromised the complete factor.

I do not see that taking place at the moment round. It is a clear dedication of the Trump administration to maintain the complete factor intact and exceptions, exclusions are usually not actually underneath dialogue proper now. Are you able to please repeat your second a part of the query as a result of I actually missed that.

Tristan Gresser — BNP Paribas Exane — Analyst

Sure. No, it was on the downstream tariffs on articles of metal, so the brand new tariffs you placed on that. You talked about it in your ready remarks. How a lot of that may be a profit on your operations instantly or not directly?

Laurenco Goncalves — Chairman, President and Chief Government Officer

Sure. Look, let’s take into consideration automobiles. In a world of free commerce, by the best way, free commerce is a factor that does not exist. Everyone knows that.

However in a world of free commerce, automobiles produced in China and transshipped by way of Mexico can hit america for $20,000. Customers could be joyful to purchase. And that is legitimate for completely the whole lot. All the pieces that you can think of.

So needn’t produce the rest. We’ll simply be right here in america, purchase on Amazon and sue one another. So that will be our each day exercise and all working from residence. So this factor isn’t going to play that approach.

So downstream tariffs are essential to keep away from the leakage that will be generated by high-end merchandise like automobiles, for instance, and one thing else and one other factor and one other factor. And swiftly, you do not have an financial system that may operate anymore. So we’re plugging the holes, the administration is plugging the holes, and we’re going to have a a lot completely different world than the one that you just described with leakages and watering down the tariffs. I do not suppose that that can occur.

And from my standpoint, we’re going to do no matter we are able to to assist the administration assist us and that is what’s taking place proper now.

Tristan Gresser — BNP Paribas Exane — Analyst

All proper. That is very clear. And lastly only a upkeep query on the money curiosity expense for the yr, should you can present some steerage there. Thanks.

Celso Goncalves — Government Vice President, Chief Monetary Officer

Sure, positive. Tristan, if you do not know how one can calculate money curiosity bills, you simply take the coupon of the bonds and also you multiply by the quantity excellent, you get the money curiosity expense.

Tristan Gresser — BNP Paribas Exane — Analyst

All proper. Thanks. And lastly, simply on the pension advantages you booked in This fall, are you able to present some steerage on that? And may you remind us if it is included in your adjusted EBITDA calculation? Thanks.

Laurenco Goncalves — Chairman, President and Chief Government Officer

$150 million is all included.

Tristan Gresser — BNP Paribas Exane — Analyst

All proper.

Laurenco Goncalves — Chairman, President and Chief Government Officer

$150 million in money, OK? Tristan? Did you hear?

Tristan Gresser — BNP Paribas Exane — Analyst

Sure. I obtained it. Thanks.

Laurenco Goncalves — Chairman, President and Chief Government Officer

OK. All proper.

Operator

Thanks. We have reached the top of our question-and-answer session. I might like to show the ground again over for any additional or closing feedback.

Laurenco Goncalves — Chairman, President and Chief Government Officer

Thanks very a lot on your curiosity in Cleveland-Cliffs. Let’s proceed to function and care for enterprise right here. And please watch issues evolve, issues are getting higher, it’s going to get significantly better. And we respect you guys following and evaluating what we now have informed you at this time on this name.

Have a fantastic day and we’ll discuss quickly. Bye now.

Operator

[Operator signoff]

Length: 0 minutes

Laurenco Goncalves — Chairman, President and Chief Government Officer

Celso Goncalves — Government Vice President, Chief Monetary Officer

Lourenco Goncalves — Chairman, President and Chief Government Officer

Martin Englert — Analyst

Nick Giles — B. Riley Monetary — Analyst

Philip Gibbs — Analyst

Phil Gibbs — Analyst

Chris LaFemina — Analyst

Carlos De Alba — Analyst

Lawson Winder — Analyst

Mike Harris — Goldman Sachs — Analyst

Tristan Gresser — BNP Paribas Exane — Analyst

Extra CLF evaluation

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