Cleveland-Cliffs to expand US iron ore pellet supplies with ArcelorMittal USA purchase

London — US steel and mining group Cleveland-Cliffs plans to increasingly dominate US supply of iron ore pellets and become the largest US integrated steel producer, after agreeing to acquire ArcelorMittal USA in a deal due to close before year-end.

The new merged group would have 28 million long tons/year of iron ore pellet capacity, up from Cliffs 20 million lt, through assuming operating interests held by ArcelorMittal at the Hibbing Taconite and Minorca operations, both in Minnesota, Cliffs said in a Sept. 28 presentation.

Under the deal, Cliffs would rival Sweden's LKAB as the second-largest global pellet producer, based on 28 million lt/year capacity, with a long ton equal to around 1.1016 metric tons.

The world's largest pellet supplier, Brazil's Vale, plans to produce 30 million-35 million mt of pellets this year, around half of its capacity globally, as demand and pellet feed supply have both fallen, with contract pellet premiums tracked by S&P Global Platts at multi-year lows.

ArcelorMittal operates an iron ore pellets and concentrate mine and export operation in Canada, which is not included with the assets in the Cliffs transaction.

Cliffs said the new group will be fully self-sufficient in iron ore supplies. About 90% of pellet sales will be sold internally, up from a 45% ratio now.

Under existing iron ore sales plans, Cliffs already contracted 7 million-10 million lt of annual pellet sales to ArcelorMittal USA through 2026. This left 2 million-3 million lt/year of pellets for other external sales after factoring in 6 million lt/year to AK Steel and 3 million lt/year for HBI demand.

Cliffs has said it sells DR-grade pellets under contract to Nucor, supplying a DRI plant in Trinidad and Tobago.

VERTICAL INTEGRATION

Cliffs continues a strategy of vertical integration in the US steel sector, offering a combined $1.4 billion cash and shares deal to take over ArcelorMittal USA, and ArcelorMittal becoming a major shareholder. Cliffs earlier acquired AK Steel, in a deal which closed in March.

The latest deal follows weaker steel margins in much of 2019 and H1 2020, greater competition from electric arc furnace steel producers using scrap and metallics, and higher sales prices for iron ore in global markets. Cliffs can sustain steel margins in its business and reduce its exposure to iron ore prices and premiums in the seaborne market, which have been volatile since 2019.

ArcelorMittal holds a 62.3% stake in the Hibbing pellet complex. Cliffs has a 23% stake in Hibbing already, with US Steel owing the remainder.

Minorca produces around 2.8 million lt of fluxed pellets, Cliffs said.

Cliffs owns the United Taconite Mine, Northshore Mine and Tilden Mine, as well as the idled Empire Mine, which produce pellets.

Cliffs said its new hot briquetted iron facility in Toledo, Ohio plans to supply HBI both internally and to other external EAF mills.

Cliffs' presentation highlighted future use of HBI in blast furnaces, with the combined group owning several furnaces on the Great Lakes in Cleveland, Ohio; and Burns Harbor and Indiana Harbor, in Indiana; as well as the inland Middletown, Ohio, mill operated by Cliffs' AK Steel subsidiary.

Cliffs will acquire the Monessen, Pennsylvania and Warren, Ohio, met coke batteries, and the Princeton met coal mining complex in West Virginia, in the deal.

AK Steel and ArcelorMittal USA work closely with coke producer and logistics operator SunCoke Energy for supply of met coke.