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

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This led to the idle of our C6 blast furnace at Cleveland Works final quarter. Plenty of this weak demand setting was a perform of unnatural market elements at play. Among these elements, rates of interest stored at very excessive ranges by the Federal Reserve, negatively impacted our service middle prospects’ potential to purchase metal from us. And, in fact, commerce distortions enabled by overseas nations supporting metal overproduction continued to be a serious drawback.

Regarding commerce, the metal trade has been coping with unfair competitors from overseas producers for many years. We have at all times 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 rules 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 constructive indicators forward of us.

We at Cleveland-Cliffs recognize the lately introduced 25% tariffs on metal imports from all nations. These tariffs are vital to addressing the issue and we thank the Trump administration to have the braveness to implement these tariffs. While the United States 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 is just not 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 opponents who’ve been enjoying by a distinct algorithm whereas strengthening the home producers who really spend money on American staff, American manufacturing and American provide chains.

The commerce angle is not simply necessary for metal however for completed items as nicely. For the primary time in historical past, 2024 was the yr when gross sales of imported automobiles within the United States surpassed gross sales of domestically made autos. Let me repeat this level yet one more time. In 2024, the variety of imported automobiles offered to shoppers was larger than the variety of home produced automobiles offered within the United States.

That is precisely why tariffs and a robust industrial coverage are mandatory to guard and power the American manufacturing base as a substitute of letting it proceed to erode. We additionally recognize that the latest tariff announcement contains downstream merchandise containing metal, and that ought to profit our shoppers in automotive and in different sectors. The tariffs can even profit our newly acquired Stelco. That’s proper.

Despite what some may assume, the perfect monetary yr for Stelco within the earlier decade was 2018, when 25% tariffs on Canadian metal imports had 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 the United States. The Canadian metal market pricing displays the U.S. market pricing.

So any ensuing rise in pricing will movement on to Stelco as nicely 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 evaluate by the DOJ went by means 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. The greatest instance is directing order flows to maximise all of our mills strengths.

This means we are able to load Lake Erie with the grids they make greatest and transition among the extra refined grades and orders to our U.S. mills. The worth we’ve got discovered right here will doubtless characterize a lot 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 on the whole, we proceed to handle prices, optimize operations, and keep our monetary flexibility. We have been by means of cycles earlier than. We know precisely what to do. We proceed to take pleasure in full help 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’ve got already defined, the market is definitely pointing in our favor. The first step is the tightening of the scrap market. We have been saying for years that the continued push towards EAFs would pressure the scrap worth larger. That’s precisely what’s occurring now.

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

This is a long-term benefit that we’ll solely get stronger over time. Our order e-book 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 packages. We are seeing our greatest pull charges since early final yr, a transparent signal that we’re recovering market share from the opponents that gave away worth.

These opponents cannot win on high quality or service, so that they gave away the farm on pricing and are actually struggling to ship on efficiency. No matter how a lot competitors tries to low-ball pricing on this market, high quality and supply efficiency at all times win in the long run. This constructive development, mixed with higher demand in different core segments, places us in a terrific place for the yr forward. After spending your complete second half of 2024 with sub $700 HRC pricing, we’re lastly beginning to see the lengthy overdue bounce.

And we are actually even higher geared up to experience this upside than earlier than with Stelco and it is primarily non-automotive e-book of enterprise within the combine, leading to a smaller share of fastened worth contracts for our whole Cleveland-Cliffs enterprise as a complete. And let’s not neglect about security. We had an excellent security report 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 whole reportable incident fee or variety of accidents per 200,000 hours labored up 0.9. And not like another firms on this trade, we rely everybody inside our fence line staff, contractors, everybody. Finally, earlier than turning it over to Celso to undergo our monetary outcomes, I’ll shortly handle a subject I’m certain lots of you need to hear about. Given ongoing litigation, we is not going to be taking questions relating to U.S.

Steel or Nippon Steel at the moment. But our place is well-known and our conviction has by no means modified. We have been steadfast in our opinion that U.S. Steel’s introduced sale to Nippon Steel would by no means shut.

I mentioned that in December 2023, then in 2024, and I’m repeating that in 2025. Just return to our convention name transcripts and public statements, and you may see that we’ve got been appropriately predicting this final result for over a yr. The actuality is that the deal has been blocked by the United States of America on critical nationwide safety considerations that can not be mitigated. The CFIUS committee rightfully acknowledged this and particularly famous that permitting Nippon Steel, an organization absolutely financed by the Japanese banking system and their near-zero rates of interest, to turn out to be a serious home participant within the U.S.

would negatively impression the way forward for your complete American metal trade and that may have an effect on a number of states of the union within the Midwest and past. President Trump has mentioned quite a lot of occasions that Nippon Steel is an unacceptable purchaser for a majority stake in U.S. metal. That mentioned, no scenario is so dangerous that it can not turn out to be lots worse.

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

Celso Goncalves — Executive Vice President, Chief Financial Officer

Good morning, everybody. Moving 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 had been our lowest because the pandemic and commodity pricing for the final six months of 2024 was the bottom six-month stretch since 2020. Given that over 90% of our shipments are impacted by both automotive pull charges or commodity metal pricing, these multi-year lows drove a adverse impression in This fall. Fortunately, each of those conditions have already begun to enhance right here into 2025 in comparison with 2024, similar to issues improved shortly in 2021 relative to 2020 just a few years in the past. As Lourenco detailed, the automotive order e-book has been remarkably wholesome to start out 2025, due largely to market share restoration and commodity metal costs quickly on the rise.

As a outcome, 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 adjustments in revenue sharing and historic scrap correlations, this $1 billion impression would largely movement instantly all the way down to EBITDA. So if you happen to 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 movement for 2025, particularly after including one other 2.6 million tons from our Canadian operations.

Total shipments in This fall had 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. Though 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 seemed like a pointy fall of $70 per internet ton from the earlier quarter, however this was largely 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. Even although we weren’t working at full capability with the C6 furnace down, we proceed to scale back price throughout the board. At this time final yr, we guided that our unit metal price can be down $30 per ton yr over yr. This is precisely what we completed, even within the face of all of the headwinds we noticed in 2024.

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

As of at the moment, 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 occasions goal on a internet debt-to-EBITDA foundation. And as we’ve got carried out traditionally, that pivots us instantly into debt discount mode. If you take a look at Cliffs’ latest historical past, we’ve got a confirmed observe report of levering as much as make strategic acquisitions and subsequently paying down debt shortly.

AK Steel, AM USA, after which FPT, it was the identical story every time. It would be the similar story with Stelco. We will use 100% of our free money movement going ahead towards debt discount till that focus on is reached. The hurdle is just not even fairly excessive as excessive this time both.

Compared to the place we stood after finishing the AK and AM USA acquisitions, our leverage is definitely already in a lot better place. On prime of that, on the time of these acquisitions, our internet pension and OPEB liabilities had been north of $4 billion. Those 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 somewhat 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 scenario that we will rectify right here in 2025. This construct units us up nicely to quickly reply to the improved demand we’re seeing to this point this yr. We can even have a lot decrease capital expenditures in 2025 on a professional forma foundation, significantly from a sustaining standpoint as we’ve got accomplished our main reinvestment cycle. Fortunately, as a single mill operation, the Stelco belongings had been very nicely capitalized and we don’t have any catch-up capex necessities like we did following the AM USA acquisition, for instance.

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you, Celso. With 2024 behind us, we’re able to reap the advantages of this new period in America. Our concentrate on manufacturing inside the United States lastly standing as much as unfair competitors and never permitting ourselves to be taken benefit of. These efforts are already displaying up in our order e-book 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 help home manufacturing and American prosperity. With that, I’ll flip it to the operator for Q&A. Kevin?

Operator

Thank you, sir. [Operator instructions] Our first query is coming from Martin Englert from Seaport Research Partners. Your line is now stay.

Martin Englert — Analyst

Hello. Good morning, everybody.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Good morning, Martin.

Martin Englert — Analyst

I recognize the time. Next week the U.S. could transfer ahead with 25% import tariffs with Canada and Mexico. This shall be along with metal tariffs already pursued I imagine.

Can you focus on 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 possibility to maneuver slabs somewhat than end metal from Stelco into the US?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes. Look, Stelco is a small a part of your complete image. And your complete image will profit extraordinarily nicely from no matter state of affairs you design, Martin, so far as tariffs. Tariffs are mandatory.

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 help that. That mentioned, Stelco, like we defined throughout our ready remarks, Stelco primarily e-book of enterprise is in Canada. And we imagine that through the use of our belongings supply of the border to execute on orders which might be coming from American shoppers will largely mitigate the adverse impression of any tariffs on Stelco.

So lengthy story quick, we imagine that any is small adverse impression on Stelco, if any, which I nonetheless do not imagine that they are going to be — that would be the case shall be largely offset and surpassed by the advantages to the remainder of the footprint which might be lots greater than Stelco individually. Another level that I want to yet one more 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 applied tariffs. So we absolutely anticipate that would be the case once more.

Martin Englert — Analyst

This goes again a methods, however eager about simply the mechanics of reporting with tariffs in place in Stelco and adjusted EBITDA, would you intend to report tariffs included or excluded from adjusted EBITDA?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

We’re going to at all times report our outcomes as they’re. And we don’t even know the right way to do what we’ve got simply steered. It was not even a part of our line of thought.

Martin Englert — Analyst

OK. Yes, simply double checking. I recognize that. If I may yet one more on fastened contracts.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Go forward.

Martin Englert — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

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

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

So however we helped them turn out to be weaker. Even this shopper is coming again. Everybody else is coming again and coming again shortly. So the state of affairs is the precisely reverse of what we had in 2024 after they had a low worth excessive fueling every thing.

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

Martin Englert — Analyst

I recognize all the colour and good luck within the 1Q right here. Thank you.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you, sir.

Operator

Thank you. Next query is coming from Nick Giles from B. Riley. Your line is now stay.

Nick Giles — B. Riley Financial — Analyst

Thank you, operator, and good morning, everybody. Lourenco and Celso, I recognize all of the background in your earlier debt paydown. I used to be curious that if we had been to see the fairness stay beneath stress, if you happen to may contemplate pausing paydown for any share repurchases? And then my second query was, do you will have a goal degree of internet debt in thoughts? Thank you very a lot.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Well, to start with, Nick, congrats in your promotion. And I’ll miss Lucas Pipes. But I do know that Lucas went to a spot that I’m certain that he’ll turn out to be an enormous shareholder of Cleveland-Cliffs. So that is a terrific factor for Lucas, and I’m certain that shall be a terrific factor for B.

Riley. And I hope will probably be nice for you as nicely, Nick. As far as that, let me begin from the targets. I believe, Celso talked about that we’re sustaining our goal of two level occasions EBITDA as our goal.

And you are going to say, oh, however we’re a lot larger proper now. Well, we’re a lot decrease than once we — after we acquired ArcelorMittal USA for instance. So we all know the right way to do this stuff. M&A is just not for vacationers.

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

As 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’ll proceed to construct the worth of our fairness. So the reply is not any.

Nick Giles — B. Riley Financial — Analyst

Lourenco, that is good to listen to and I actually recognize the sort of feedback. I’m certain Lucas would say the identical. My subsequent query was, curious how we should always take into consideration quantity cadence over the course of the yr? And how a lot of your price steering may very well be predicated on higher fastened price absorption versus decrease uncooked materials prices?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes, I’ll let Celso reply that one, Nick, please.

Celso Goncalves — Executive Vice President, Chief Financial Officer

Yes. Hey, Nick. Just to echo Lourenco’s feedback, congrats once more. So as we glance towards the remainder of 2025 and I need to really handle a query that Martin had requested beforehand because it pertains to ASPs that I do not assume we absolutely answered.

Following the acquisition of Stelco, we will have a smaller share of our quantity beneath fastened costs. So as we glance towards the remainder of this yr, solely about 30% to 35% of our volumes are beneath fastened pricing. And then you will have 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 make it possible for was addressed as nicely.

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

Nick Giles — B. Riley Financial — Analyst

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

Celso Goncalves — Executive Vice President, Chief Financial Officer

Correct. Yes, we’re not bringing C6 again at this level.

Nick Giles — B. Riley Financial — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Next query is coming from Philip Gibbs from KeyBanc Capital Markets. Your line is now stay.

Philip Gibbs — Analyst

Hey. Good morning.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Good morning, Phil.

Philip Gibbs — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Sure. Our capex for this yr could 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, although that is our quantity because the second that we dedicated of the acquisition of Stelco. But this $100 million may very well be some financial savings right here. I’m undecided if we will — will probably be essential to spend your complete $100 million on this yr, however that is the quantity we’ve got in our books proper now.

And one other $100 million for the three initiatives, Middletown, Butler and Weirton. And that is just about what we’re planning to spend this yr. As far as subsequent yr, it’ll all rely upon how issues will go, significantly within the Middletown one. I imagine that Weirton goes quick and goes in the appropriate course.

Butler, the identical factor, the modernization of the furnaces at Butler. And you understand how necessary grain-oriented electrical steels is for us. So we are going to proceed to spend that cash. In the Middletown mission, it is all about what is going on to occur subsequent with the efforts to supply hydrogen within the space.

That mission can turn out to be extra towards pure fuel, which for me is extra snug as a result of it is one thing that we dominate, significantly a direct discount plant function beneath pure — utilizing pure fuel as reductant. That’s precisely what we’re have in Toledo. So that is the one caveat that I’ve for that particular mission. But it is so distant.

We have a lot time to proceed to debate with the brand new Department of Energy and we are going to go from there. So we’re in good condition in all three.

Philip Gibbs — Analyst

And then on the Weirton mission for electrical steels and associated gear, I can not bear in mind, do you will have a companion there now?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

We do.

Philip Gibbs — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes, we do. We do. We do and we purchase gear. So on the proper time, we are going to evaluate all of the names and every thing.

But the purpose 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

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

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes, we may have the next worth combine since you talked about the principle cause, we will have extra automotive within the combine. But make no mistake, general, 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 general we’re going to have the ability to profit from worth improve extra instantaneously than we had in that yr. Because on that yr, we’re overloaded with automotive. At this time, we’re not.

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. Actually, a few opponents of Cleveland-Cliffs may have this drawback and they’ll have this drawback 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 shall be ours.

Philip Gibbs — Analyst

Yes. Thank you a lot.

Celso Goncalves — Executive Vice President, Chief Financial 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 at the least $10 a ton from This fall. Obviously, the month-to-month lag contracts shall 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 can even profit pricing.

Philip Gibbs — Analyst

Thank you a lot. Appreciate the clarification.

Operator

Thank you. Next query is coming from Chris LaFemina from Jefferies. Your line is now stay.

Chris LaFemina — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Hi, Chris.

Chris LaFemina — Analyst

How are you doing? Just shortly 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’ve got the upcoming impression of tariffs, which might clearly be good for the medium to long run for you. But I’m 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’ve got type of consolidation earlier than the costs begin to transfer larger or do you assume that is extra a mirrored image of demand actually recovering after a really weak 2024? That’s my first query.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes, I believe that may be a mixture of every thing, however demand is coming again — as 2025 progresses, Chris, you will see increasingly more home consumption for the straightforward indisputable fact that they don’t seem to be going to have the ability to import anymore. When you place tariffs on metal on each single nation and when you do not settle for exceptions, you do not create mechanisms for folks to begin to sport the system by submitting exceptions. And extra importantly, once we shut down the door in Mexico that brings metal by means of Mexico into the United States and destroys {the marketplace} then we’ve got a terrific mixture to enhance and to extend demand. Of course, within the short-term, there shall be sort of a rearrangement of the availability chains.

But look no one can say that it is environment friendly to love the CEO of OneSteel firm mentioned some components transfer throughout the border between the United States and Mexico seven occasions. And then they recall that effectivity. My goodness, that is silly with all due respect. So let’s produce every thing right here within the United States and get issues again the place they belong.

And remember, for a rustic like Mexico, tariffs shall 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

Great. Thanks for that. And then, 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 means of the remainder of the yr from working capital? And I’m 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 complete yr, you get a profit from working capital somewhat than the draw they’d within the first quarter?

Celso Goncalves — Executive Vice President, Chief Financial Officer

Yes, 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 largely all stock pushed, significantly in uncooked supplies, pellets and coke.

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

Chris LaFemina — Analyst

OK. Great. Thanks, guys and good luck.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

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

Do you recognize why? Because I had full confidence that President Trump would hold the promise that he made. Promise made, promise stored. And tariffs are coming, demand is coming and I’ve the pellets. Remember, 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 applied. We are 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 folks.

We have every thing. We produced much less tons, however the staff are there and we’re able to go. And that is what you do when you’re 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 grasp.

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 Executive Officer

Thank you.

Operator

Thank you. Next query at the moment is coming from the road of Carlos De Alba from Morgan Stanley. Your line is now stay.

Carlos De Alba — Analyst

Yes. Thank you 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 eat money in Q1? So I assumed that after the rise within the fourth quarter, you would cut back working capital within the first quarter.

Celso Goncalves — Executive Vice President, Chief Financial Officer

Yes, will probably be comparatively impartial in Q1, Carlos. But you may begin to see the profit in subsequent quarters.

Carlos De Alba — Analyst

Right. OK, nice. And a few extra questions. One is, on the auto worth for 2025, any extra colour that you may supply? Do you anticipate costs to be flattish, to maneuver larger, transfer down, clearly recognizing that now the fastened costs general characterize a much less share of your general volumes?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes, your complete image of automotive will characterize much less of a share of the general quantity and that is a internet constructive for us. But 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 towards in 2024.

Carlos De Alba — Analyst

All proper. Thank you. And so trying on the steadiness sheet and your working capital and money movement era, clearly the precedence is to deliver down debt. Any and look I perceive that you’re very constructive 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’m going to simply handle it. Is there a chance of an fairness issuance or at this time limit, you are feeling that’s not wanted?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

I normally subject fairness when this — the fairness — the worth per share is excessive. When the worth per share is low, I subject 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 subject with out even my assist. And we’ve got a following and we recognize our bondholders.

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

We did — we issued unsecured debt to enlarge our liquidity. And if you happen to 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 accumulate Stelco. So it is simply a part of the M&A method and every thing goes accordingly to plan, together with the truth that we knew that in 2025, we might have a brand new starting for manufacturing within the United States and we absolutely help that and we are going to proceed to work to make this factor occur for the nation and for Cliffs and for our shareholders.

Celso Goncalves — Executive Vice President, Chief Financial Officer

Yes, Carlos, there isn’t any want to lift fairness or to subject fairness presently. We had been very proactive on the steadiness sheet on the capital construction. We did these unsecured offers to lift liquidity. Now we’ve got all of the liquidity that we want.

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

But we even have — our bonds are nicely staggered in a approach that they turn out to be callable with no penalty beginning this yr. So even after we have paid down your complete ABL, we’ve got these completely different tranches of bonds that we are able to begin to assault. So it is debt discount from free money movement era with no fairness increase.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

And once more, if you happen to 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’d begin having tranches of our bonds able to be paid down or paid off with money movement era beginning 2025.

Carlos De Alba — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Let’s see what occurs. There’s a man that claims that lots. When he says that, those which might be within the receiving finish, they normally they know that they are in a foul spot. Let’s see what occurs.

Celso Goncalves — Executive Vice President, Chief Financial Officer

But to reply your query, Carlos, the steadiness sheet is just not a constraint. We’ve confirmed that we are able to increase capital shortly when wanted. So the steadiness sheet is just not the constraint.

Carlos De Alba — Analyst

All proper. Excellent. Well, thanks very a lot.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Next query is coming from Lawson Winder from Bank of America. Your line is now stay.

Lawson Winder — Analyst

Thank you, operator, and good morning, Lourenco and Celso. Nice to listen to from you each. Celso, you talked about that bringing the Cleveland Works No. 6 again on-line is just not one thing that you just’re contemplating for the time being.

Could you possibly communicate to the circumstances for a possible restart? And how you consider probably doing that?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

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

Lawson Winder — Analyst

OK, excellent. That’s 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 may be? And may a few of that probably be realized even this yr earlier than year-end?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Celso, take that.

Celso Goncalves — Executive Vice President, Chief Financial Officer

Yes. I imply because it pertains to the Stelco synergies, Lawson, we really feel extraordinarily assured in having the ability to overachieve that $120 million that we outlined. I believe we have given the breakdown of that. But if you happen to simply take a look at what we have carried out with our different acquisitions, we’ve got a observe report 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. But we proceed to establish increasingly more distinctive methods to maximise worth from this mixture and we’ll be updating you guys over time. But for now we really feel extraordinarily assured in regards to the $120 million that we initially outlined.

Lawson Winder — Analyst

OK, improbable. 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 by way of pricing?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

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

Lawson Winder — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes. 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 opponents, two of our opponents making massive investments to supply much more non-oriented electrical steels as a result of they’re believers in electrical autos and the full electrical autos will change all ICE autos or inside combustion engines autos in a brief time frame. Good luck with that. My objective with electrical steels has at all times been to supply 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 supply grain-oriented electrical steels, however you should have one factor that folks discuss loosely about, however typically there’s nothing behind. It’s referred to as expertise. We have the expertise. We produce the ARMCO grain-oriented electrical steels as of at the moment, and that is the best-selling grain-oriented electrical steels in your complete world.

So we’re good at that. We haven’t any competitors. Competition can be welcome. I’m happy with competitors.

Come to compete with us. There’s a market right here for grain-oriented electrical steels. We have to supply it. So far it is solely Cliffs and we’re comfortable serving the market.

So comfortable that now we will produce transformers ourselves.

Lawson Winder — Analyst

OK. Thank you each to your feedback.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Next query is coming from Mike Harris from Goldman Sachs. Your line is now stay.

Mike Harris — Goldman Sachs — Analyst

Thank you and good morning.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Good morning.

Mike Harris — Goldman Sachs — Analyst

Just wished to have a look at — if we take a look at the anticipated price reductions in 2025 and what you have carried out 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 will have skilled to the appropriate of price curve?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Look, in fact, this quantity strikes us to the left of the fee curve. But the purpose with the fee curve is that we’re not an organization that is designed to function at low capability. We should not an organization designed to function at low-grade steels. We are designed to supply high-end steels.

It’s like when you’ve got a automotive and also you need to make some more money 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 are a Ferrari. We are good when the economic system is working, when the tremendous energy is producing issues domestically and when you do not permit 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. Yes, as you’re employed for Goldman Sachs, proper?

Mike Harris — Goldman Sachs — Analyst

Yes.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

So as you might know, there may be an curiosity for a world firm to accumulate built-in belongings within the United States. Have you ever requested you why? Why? It’s as a result of built-in metal belongings have a spot in economies which might be purposeful and that is what we’ve got now within the United States. So look ahead to us in 2025 and we will see what a vibrant economic system, manufacturing economic system fueled by home metal manufacturing can do when you will have the appropriate belongings to help that kind of effort. And that is Cleveland-Cliffs and the nation I’m speaking about is United States.

Mike Harris — Goldman Sachs — Analyst

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

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes, we’re nonetheless transferring, transitioning from lackluster 2024, wherein like I mentioned in my ready remarks, extra automobiles, imported automobiles offered within the United States than automobiles produced within the United States. So that is an aberration. That’s felony. So we’re fixing that.

And as quickly as we’ve got increasingly more automobiles offered within the United States which might be produced within the United States, we are the ones supplying the metal for that. It’s coming in 2025. Our C6 blast furnace is down and we will hold it down for now. So capability utilization share, I do not even know the way this stuff are calculated.

That’s the image that I want to inform. We have loads of capability to supply extra in our downstream traces and we’re very proud of 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 a large number.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Next query at the moment is coming from Tristan Gresser from BNP Paribas Exane. Your line is now stay.

Tristan Gresser — BNP Paribas Exane — Analyst

Hi. Thank you for taking my questions. I’ve two. First, are you able to focus on 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’d prefer to have your view on why do you assume it is completely different this time? And additionally you touched on the tariffs on the downstream aspect, how a lot of that of a profit may very well be for you? I’d begin there. Thank you.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

I did not get the second half, however I’ll reply to the primary half, then you definately repeat your second half. This time across the administration and I heard that from the a lot of the secretary, the administration is just not planning to toy with exceptions. The exclusions, exceptions are at all times the start of the top. So there’s a variety of dedication proper now to not permit 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. But with so many exceptions that the holes compromised your complete factor.

I do not see that occuring presently round. It’s a transparent dedication of the Trump administration to maintain your complete factor intact and exceptions, exclusions should not actually beneath dialogue proper now. Can you please repeat your second a part of the query as a result of I actually missed that.

Tristan Gresser — BNP Paribas Exane — Analyst

Yes. 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 to your operations instantly or not directly?

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Yes. Look, let’s take into consideration automobiles. In a world of free commerce, by the way in which, free commerce is a factor that does not exist. We all know that.

But in a world of free commerce, automobiles produced in China and transshipped by means of Mexico can hit the United States for $20,000. Consumers can be comfortable to purchase. And that is legitimate for completely every thing. Everything conceivable.

So needn’t produce anything. We’ll simply be right here within the United States, purchase on Amazon and sue one another. So that may be our every day exercise and all working from house. So this factor is just not going to play that approach.

So downstream tariffs are necessary to keep away from the leakage that may be generated by high-end merchandise like automobiles, for instance, and one thing else and one other factor and one other factor. And abruptly, you do not have an economic system that may perform 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 assume 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 occurring proper now.

Tristan Gresser — BNP Paribas Exane — Analyst

All proper. That’s very clear. And lastly only a upkeep query on the money curiosity expense for the yr, if you happen to can present some steering there. Thank you.

Celso Goncalves — Executive Vice President, Chief Financial Officer

Yes, certain. Tristan, if you do not know the right way to 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. Thank you. And lastly, simply on the pension advantages you booked in This fall, are you able to present some steering on that? And are you able to remind us if it is included in your adjusted EBITDA calculation? Thank you.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

$150 million is all included.

Tristan Gresser — BNP Paribas Exane — Analyst

All proper.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

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

Tristan Gresser — BNP Paribas Exane — Analyst

Yes. I bought it. Thank you.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

OK. All proper.

Operator

Thank you. We’ve reached the top of our question-and-answer session. I’d like to show the ground again over for any additional or closing feedback.

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Thank you very a lot to 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’ll get a lot better. And we recognize you guys following and evaluating what we’ve got informed you at the moment on this name.

Have a terrific day and we are going to discuss quickly. Bye now.

Operator

[Operator signoff]

Duration: 0 minutes

Laurenco Goncalves — Chairman, President and Chief Executive Officer

Celso Goncalves — Executive Vice President, Chief Financial Officer

Lourenco Goncalves — Chairman, President and Chief Executive Officer

Martin Englert — Analyst

Nick Giles — B. Riley Financial — 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

More CLF analysis

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Cleveland-Cliffs (CLF) Q4 2024 Earnings Call Transcript was initially revealed by The Motley Fool