Cleveland-Cliffs swung to a profit in the fourth quarter of 2020 following its acquisition of ArcelorMittal USA assets, and the steelmaker expects better results in the first half of 2021, company executives said.
The iron ore miner and steelmaker recorded a net profit of $64 million in the fourth quarter of 2020, compared with a net loss of $10 million in the third quarter this year and earnings of $63 million in the year-ago quarter, according to financial results released on Thursday February 25. The results included the performance of Cleveland-Cliffs Steel, formerly ArcelorMittal USA, from the period spanning December 9-31, 2020.
During the fourth quarter, the company shipped 1.9 million net tons of steel from its mills. Of that total, 1.25 million net tons came from the AK Steel assets the company acquired in March 2020 and the remainder from the ArcelorMittal facilities acquired in December, Keith Koci, executive vice president and chief financial officer of Cleveland-Cliffs, said on a conference call with analysts on Thursday.
The company expects total shipments to surge to approximately 4 million net tons during the first quarter this year, Koci said.
The company now has 10 blast furnaces (BFs) in its portfolio and is keeping between six and seven in operation simultaneously, according to president and chief executive officer Lourenco Goncalves. This will allow the company to perform maintenance while keeping enough capacity running to meet demand, he said.
“We will be taking our Middletown facility down for a 45-day maintenance outage to do some work inside the blast furnace, but not a full reline,” Goncalves said. “In order to continue to meet our strong customer demand, we have restarted the smaller Cleveland No6 blast furnace to make up for the lost Middletown production. Once Middletown comes back, we will have another maintenance outage at Indiana Harbor No7.”
Cleveland-Cliffs’ new direct-reduction plant in Toledo, Ohio, began operating in November and started producing hot-briquetted iron (HBI) in December, according to Goncalves.
“We are progressing through our planned ramp-up period, steering through a cold winter and making the appropriate adjustments to bring the plant up to its full production level by the second quarter,” Goncalves said. “We are currently making HBI exclusively for our own internal use, and we will start to ship product to third-party customers later in March.”
Cleveland-Cliffs also announced on January 28 that it will cut its greenhouse gas (GHG) emissions by 25% by 2030, making it the first US steel producer to publicly commit to a specific carbon-reduction goal, according to Fastmarkets records.
Increasing electric-arc furnace (EAF) capacity and boosting the use of HBI will help the company meet these goals, Goncalves said. EAFs that melt scrap produce less greenhouse gas than traditional blast furnaces that convert raw materials into steel, he noted, adding that Cleveland-Cliffs’ natural gas-based HBI is less polluting than coal used to melt iron in BFs, and that its HBI can be made with hydrogen once that becomes commercially available.
The steel price rally during the fourth quarter was not reflected in Cleveland-Cliffs’ fourth-quarter results, due to the nature of long-term contracts and because the company did not take control of the ArcelorMittal assets until December, Goncalves said.
Fastmarkets’ daily steel hot-rolled coil index, fob mill US surged in the fourth quarter, ending 2020 at $51.50 per hundredweight ($1,030 per short ton), up by 68.36% from $30.59 per cwt ($611.80 per ton) three months earlier on October 1, 2020. The index was calculated at a record $61.85 per cwt ($1,237 per ton) on February 25.
The integration of the ArcelorMittal assets into the company is going well, and Cleveland-Cliffs gets the added benefit of gaining increased exposure to spot hot-rolled coil prices, according to Goncalves. When the company only owned AK Steel, the bulk of its sales were tied to fixed-price automotive contracts.
“We can confidently say that the second quarter will look even better than the first quarter, this very good first quarter that we are in now,” Goncalves said, adding that the company expects its earnings will “dramatically improve in the first quarter of 2021.”
Indeed, Cleveland-Cliffs’ purchase of the ArcelorMittal USA assets and of AK Steel has transformed the iron ore miner into a major steelmaker.
“For the ones that like to talk about who is gaining market share from whom in the steel business, let me remind you of one thing,” Goncalves said. “One year ago, Cleveland-Cliffs was producing and selling zero tons of steel, and we’re now, one year later, the largest flat-rolled steel company in North America. That is a pretty sizable gain in market share, I believe.”
Emphasizing value over volume, Goncalves said that with the acquisition of ArcelorMittal USA, Cleveland-Cliffs does not “need to spend millions and millions of dollars to upgrade our hot-strip in Middletown,” explaining that the company now can produce certain grades at the Indiana Harbor or Cleveland Works.
“Our asset optimization process is off to a great start as well,” Goncalves continued, adding that Cleveland-Cliffs aims to have $150 million in savings this year from merging the newly acquired assets. “We have already started moving slabs and coils between the former AK and former [ArcelorMittal] facilities to reduce logistics costs and to improve our customers’ delivery requirements.”
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