Cleveland-Cliffs 'making progress' with new Services division: CEO

Cleveland-Cliffs Inc. continues to progress with the creation of its recently announced Cleveland-Cliffs Services division, which aims to grow the company's presence in the scrap recycling business.

"I made it abundantly clear that we're going toward scrap and I do believe that going forward for a successful steel company to continue to do business and continue to be successful, the company is going to need two things: one is iron units and the other is scrap," said Cleveland-Cliffs Inc. CEO Lourenco Goncalves in an interview with S&P Global Platts Aug. 30.

When asked whether the recent announcement was made because the company is now beginning to explore opportunities, or because it is close to closing on an acquisition, Goncalves said: "We are in talks with a few (targets in the scrap industry). The timing of this transaction is dependent on both parties. I can't tell you whether a deal is imminent, but we are making progress."

Goncalves said the driving rationale behind the creation of Cleveland-Cliffs Services is different from the scrap operations affiliated with other major mills. "You need to understand, their ultimate goal is to reduce the price of scrap. They rely on scrap as their primary feedstock. Our situation is very different," he said. "Because of the difference in profile at our company, our focus is continuing to have access to quality feedstock. They're looking for cost, we're looking for quality."

With an abundance of new steelmaking capacity coming online in the US, Goncalves said the impact on procurement of raw materials would be the most challenging aspect, rather than the increase in supply of finished steel. "The biggest consequence of this capacity expansion in the US is the increase in competition for raw material. 100% of the growth is EAF and the scrap and the iron unit supply to supply those EAF's is not growing at all," Goncalves said, making an exception for Cliffs' Toledo, Ohio hot-briquetted iron facility.

"A lot of high-quality feedstocks come from our own steel," Goncalves said, referencing prime scrap. "I want to grow that, I definitely want to grow that. That's one of the goals of what we are putting in place."

"We are highly concentrated on highly sophisticated specs. Homogeneity of feedstock to us is very, very important," Goncalves said. He pointed to their HBI consumption as an example and said that the benefit of heavy HBI use at Cliffs mills has been a significant advance in the electrical properties of its steel.

On Sept 1, the company will be taking down its Indiana Harbor No. 7 blast furnace for 45 days as part of an investment to increase ability consume more HBI and inject more natural gas for lower CO2 emissions and improved efficiency.

The company also announced several executive management promotions on Aug. 30. Cliff Smith will be Cliffs executive vice president and president of Cleveland-Cliffs Steel, Keith Koci will be EVP and president of Cleveland-Cliffs Services, and Celso Goncalves will be EVP and chief financial officer, all effective Sept. 1.

According to a statement from the company, the expanded scrap recycling presence will fall under Cleveland-Cliffs Services. The ongoing steel business will stay within Cleveland-Cliffs Steel, an already existing Cleveland-Cliffs Inc.'s division.

"Today's announcement represents the formation of the ideal leadership structure for our recently transformed company going forward, with promotions to the three members of my core team," Goncalves said in the statement.

"First, Cliff has been and will continue to be my second in command at Cleveland-Cliffs, and the success of the integration of our two major acquisitions speaks to his effective leadership. Second, in this new era of steel decarbonization, scrap will become precious metal, and Keith's deep background in M&A makes him the perfect person to lead this venture. And finally, through his successful career both in investment banking and here at Cliffs leading our capital structure transformation initiatives, Celso has perfected the skills I need in a CFO at this time," he added.