Cleveland-Cliffs Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, Donna, and good morning, everyone.

Three months ago, we told you that the earnings recovery at Cleveland-Cliffs was becoming visible. Today, the recovery is firmly underway. Our Q3 adjusted EBITDA was $612 million, more than double the $286 million we generated in Q2. All three of our major profit drivers improved. Shipments increased. Selling prices rose in line with our expectations, and costs performed better than we had guided. One thing that has become very clear over the past year is that a healthy domestic steel industry happens when trade laws are enforced and when foreign producers are no longer allowed to dump steel into our markets without consequences. Today, the United States has a much more rational trade environment, and the result is exactly what you would expect.

Stronger domestic production, higher utilization rates, more investment in steel facilities, and more confidence from both steel producers and steel consumers. Every conversation about reshoring manufacturing, rebuilding infrastructure, expanding energy production, strengthening the electrical grid, or supporting national defense starts with steel. At Cleveland-Cliffs, we mine iron ore, produce pellets, and also produce HBI. We produce steel from scratch with a 25,000-person workforce that spans some of the most important industrial communities in the United States. The trade policies of the Trump administration are helping create the conditions needed for companies like ours to continue investing in those communities and expanding domestic production. What the Trump administration has done on trade is not just good for Cleveland-Cliffs, it's good for America.

As a consequence of the renaissance of manufacturing in the U.S., we are currently selling steel under the best price environment in three years, and these are the prices we need to run a thriving business that grows employment, pays its workers well, reinvests in people and equipment, and protects our critical supply chains and national defense. The most important and positive development for Cleveland-Cliffs since our last call has been the strength of our 2027 round of contract negotiations with our clients. The largest portion of our steel volume consists of tons sold to service centers and end users under annual fixed price or index-linked contracts. These agreements cover every segment of light flat rolled steel consumption outside automotive. All these contracts reset on January 1 of next year, and nearly all of these customers want more steel under contract in 2027 than in 2026.

Suffice to say that we have been very successful in renewing these contracts. In aggregate, the improvements should generate more than $1 billion of year-over-year EBITDA improvement before even contemplate changes of the underlying pricing index. More importantly, our customers are not fleeing to imported steel. Actually, we are finally operating within the U.S. with a fair commercial structure that is critical to sustaining a healthy business, allowing us to reinvest in our facilities and in our people. The strong contract renewal environment and the good health of our well-maintained equipment have created a compelling opportunity to maximize the value of our existing asset base. With that, we are postponing the Burns Harbor C blast furnace reline from mid-2027 to April 2028. Our President and Chief Financial Officer, Celso Goncalves, will be talking about that on his prepared remarks.

We have several other similar ongoing projects, bigger and smaller, the most critical being the modernization of Middletown Works. This past quarter, we officially completed the re-scoping of our $1 billion modernization project for Middletown. This revised project was commemorated with a visit by Vice President JD Vance to his hometown of Middletown, Ohio, and to our flagship automotive grade steel plant, Middletown Works. The new scope entails a $1 billion investment, including $500 million of support from the Department of Energy, and will modernize one of the most important steelmaking facilities in the country while maintaining uninterrupted production throughout the construction period. The project includes a state-of-the-art blast furnace rebuild, advanced material handling infrastructure, artificial intelligence-enabled process controls, and a new cogeneration facility that will capture blast furnace gas and convert this off gas into electricity and steam for on-site use.

Our work on this re-scoped project has already begun, and we expect to be completely done in the first quarter of 2030. Other notable projects on the agenda in the coming years that fit into our reinvestment master plan include the coke plant rebuild at Burns Harbor, a blast furnace stove rebuild at Stelco in Canada, and the grain-oriented electrical steel expansion goes at Butler Works. Two weeks ago, we hosted the Secretary of Energy, Chris Wright, the Assistant Secretary of Energy, Audrey Robertson, and the Undersecretary of Commerce, William Kimmitt, in Butler, Pennsylvania, where we discussed the importance of projects like these in supporting the manufacturing and energy dominance agenda of the Trump administration. They all recognize the importance of protection against unfair trade, and we are confident that they will not waver from this critical policy.

We don't believe, and we don't anticipate that a surge of imports could be coming into the U.S. anytime soon. Imports remain approximately 35%-40% below the level that existed before the implementation of Section 232 national security steel tariffs of 50% for the product and derivative products. Besides the tariff itself, transportation expense, long lead times, currency exposure, and the risk that material will arrive into a different market than the one in which it was ordered are some of the problems to be faced by the brave that still try to import steel into the U.S. Those factors create a meaningful risk premium. None of our customers have revolted, and in fact, it's quite the opposite. Intelligent customers understand the operational cost of an unreliable supply chain.

A lower quoted price offered by a trading company has little value if the product arrives late, fails qualification, or cannot be replenished when production schedules change. We expect strong trade enforcement to remain a lasting feature of the American steel market, because the underlying problem has not changed. Global steelmaking overcapacity remains enormous, and state-subsidized production continues to seek an outlet. Moving to Canada, the improvement in the hot-rolled market for Stelco that I discussed on last quarter's call has accelerated. It took the U.S. market roughly 12 months to see a $400 improvement to the spot price of hot-rolled coil. It took the Canadian market only four months to see a similar improvement. The significant improvement we have experienced in our hot-rolled business was a direct consequence of the TRQ system implemented by the Canadian government.

The Canadian domestic market, without protection, is a lot more exposed than any other country in the world, and that's the reason we have been advising the Canadian government on what we believe needs to be done to finish what they have successfully started. The Galvanneal steel business in Hamilton, Ontario, which represented less than 20% of our Stelco output, is still at risk. We met in person in Ottawa a number of times to explain the Fortress North America solution, supported by the entire Canadian steel industry, not only by Stelco, but we were not successful. Three months ago, in our Q2 investors' conference call, we spoke about possible negative consequences of inaction, potentially putting at risk the jobs of Stelco workers in case the Canadian government continued to ignore our requests. Unfortunately, we were not heard.

Instead of a real solution, at the very last minute, the Canadian government offered us what they called financial support, but that's not what Stelco needs. What Stelco and Stelco workers really need is a market to sell Galvanneal steel, and government money cannot buy a market for Galvanneal steel. On the other hand, if the Canadian government use the power they already have, they have the ability to unilaterally exercise to block or severely reduce imports of Galvanneal steel into the Canadian market, Stelco can immediately bring back all the temporarily laid-off workers because that would immediately give us a market to sell and the ability to produce Galvanneal steel. One more time. The domestic market for Galvanneal steel in Canada is not big enough to accommodate two Canadian producers of Galvanneal steel, Stelco and ArcelorMittal Dofasco, and also an avalanche of imports that have not been adequately reduced by Canada's tariff rate quota system.

Cleveland-Cliffs invested CAD 3.4 billion less than two years ago to acquire Stelco, and Stelco was supposed to be an immediately accretive investment for Cleveland-Cliffs. A couple of months later, and for reasons clearly beyond our control or ability to predict, Stelco became a negative contributor to Cliffs' results, a situation that persisted for more than a year. Fast-forward, we found a way to steer Stelco out of trouble and into a profitable path, all while waiting as long as possible to avoid the idling of the Galvanneal line at a significant cost, because that business with insufficient volume was not profitable.