Cleveland-Cliffs shifts 2021 focus to asset optimization, steel plant integration

Pittsburgh — After entering the finished steel market in 2020 through its purchases of AK Steel and substantially all of ArcelorMittal's US assets, Cleveland-Cliffs has no further acquisitions on the horizon and instead will spend 2021 improving this newly acquired asset base, CEO Lourenco Goncalves said Feb. 25.

The iron ore miner became the largest flat-rolled steel producer in North America in December when its acquisition of the ArcelorMittal assets closed. As a result, the company updated its segment reporting for the fourth quarter and full-year 2020.

Cliffs said it shipped 3,783 st of steel for 2020 from Dec. 9 to Dec. 31. Its Q4 2020 steelmaking revenues of $2.1 billion included about $859 million, or 41%, of sales to the automotive sector, it added.

"Even with increasing tons from 3 million to 5 million, we actually reduced our percentage of participation in the auto sector from 70% as AK Steel stand-alone to 40% as the combined Cleveland-Cliffs, allowing us to benefit faster from higher market prices for steel," Goncalves said Feb. 25 during the company's Q4 conference call.

Cliff's asset optimization work is off to a strong start so far, Goncalves said.

"We have already started moving slabs and coils between the former AK and former AM facilities to reduce logistics costs and to improve our customers' delivery requirements," Goncalves said. "This material movement continues to be optimized and we should increase over time. With that and several other initiatives, we are well on the way to reach our synergy target of $150 million by the end of this year."

Goncalves reiterated that Cliffs will take a value over volume approach to its steelmaking assets.

"We are taking a disciplined approach to supply," he said. "We will continue to manage our customer needs and will not restart capacity on a whim just to add tonnage to the spot market. That would not be good for anyone, including Cliffs' business and our workforce."

The assets acquired from ArcelorMittal complement what Cliffs already had in its portfolio from the AK Steel deal, Goncalves said. "That will save us from spending a significant amount in capex to make the AK Steel assets able to produce certain grades that we can produce in Indiana Harbor or Cleveland works," he added.

Steel demand from the automotive sector remains strong, with automakers struggling to keep up with resilient customer demand, Goncalves said. While a global shortage of semiconductor chips has affected automotive manufacturing, so far there has only been a minor short-term demand impact on steel, with auto customers telling Cliffs the lost production will be made up during the year, he said.

Cliffs' value-over-volume philosophy is guiding its near-term production decisions, as it has a number of scheduled maintenance outages slated for 2021, Goncalves said.

The company restarted the #6 blast furnace at its steelmaking operations in Cleveland as it has a 45-day maintenance outage upcoming at its Middletown Works in Ohio, S&P Global Platts previously reported.

"Once Middletown comes back, we will have another maintenance outage at Indiana Harbor #7," Goncalves said. "We currently have 10 blast furnaces in our portfolio and are keeping between six and eight ... in simultaneous operations," he said.

Capital expenditures for the full-year 2021 are expected to be in the $600 million-$650 million range, the company said.

The company has total liquidity of about $2.6 billion as of Feb. 24, comprising about $200 million in cash and about $2.4 billion of availability under its ABL credit facility, it said.

Overall, Cliffs reported Q4 net income of $74 million on sales of $2.26 billion, up from Q4 revenue of $534 million in 2019, prior to the steelmaking acquisitions.

For 2020, net sales rose to $5.32 billion from $1.99 billion, but the company posted a net loss of $81 million, which included $186 million of acquisition-related amortization of inventory step-up and severance costs. In 2019, the company's net income $293 million included $9 million of acquisition-related and severance costs.