Commodities 2021: Miner Cleveland-Cliffs focusing on synergies, value-add sales as it enters 2021

Pittsburgh — Though iron ore miner Cleveland-Cliffs entered 2020 with no finished steelmaking assets in its portfolio, as of the end of December, it is poised to enter 2021 as the largest flat-rolled steelmaker in North America. This follows the company's acquisitions of AK Steel and essentially all the operations of ArcelorMittal USA in the last nine months of 2020.

While steelmakers spent the early 2000s divesting upstream assets like mining operations, the challenges of the coronavirus pandemic and expectations that the virus will change consumer behavior and the way business is done in the US as the country recovers, highlight the need for the steel industry to adapt, Cliffs CEO Lourenco Goncalves said in a recent interview with S&P Global Platts.

"We are at the brink of really changing the way we see the steel business in this country," Goncalves said.

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Through its acquisitions of AK Steel in March and ArcelorMittal USA in December, the new Cleveland-Cliffs represented 16.5 million st of flat-rolled steel shipments in 2019, according to a company presentation.

Despite the addition of steelmaking, the new Cliffs will not be very different from the old Cliffs from a market standpoint, Goncalves said.

"The historical Cliffs was the foundation of manufacturing in the US by supplying the steel mills with iron ore pellets and these mills were supplying the manufacturers," he said. "We're just combining step one and step two under the same roof."

Consumer shift on auto

The combining of these assets comes during a big shift in consumer behavior amid the pandemic, Goncalves said.

"People are moving out of the big concentrated downtown centers, like in New York, more toward the suburbs so they need cars," he said. "Sometimes they don't need one car, they need two cars if it's a couple, so it's a very interesting moment from a consumer standpoint."

As independent companies, AK Steel and ArcelorMittal USA were the top two suppliers to the automotive market, he said.

"At the very least we're looking at 6 million st in a market that consumers 17 million st (per year)," he said.

Focus on synergies, value-add steel

The focus for Cliffs in 2021 will be extracting synergies, particularly regarding transportation, Goncalves said. For example, the company can now send steel slab produced at AK Steel's former Dearborn, Michigan, facility to ArcelorMittal mills in Indiana instead of having to transport the slab to Middletown, Ohio.

Cliffs has no immediate plans to bring back any of the blast furnace capacity previously idled by AK Steel or ArcelorMittal, Goncalves said in mid-December, adding that restarts are not part of the playbook.

Along with a focus on optimization and logistics, Cliffs' sales strategy will be focused on high value-add.

"We are not focusing on the commodity material even though we are in a very comfortable position," he said. "What is wrongly called low-cost producers, they're not low-cost producers. They are variable cost producers so when scrap prices are low, yes, they are low-cost producers but when scrap prices are high, they are not low-cost producers.

"On the other hand, because we are self-sufficient in pellets our cost of pellets is the same no matter if scrap is $200 or $500. Despite the fact that we can be competitive right now, I have no interest and no intention to be a price hawk," he added.

US shift to 'inclusive capitalism'

With President-elect Joe Biden set to take office in January as the economy continues to recover, Goncalves said he see a chance for "inclusive capitalism" to become a larger focus in the US.

"We are at the very moment where we can really leverage, to push what will happen to manufacturing; to produce things in North America, infrastructure, that's all things that are absolutely needed to create real capitalism," he said. "...It's out of necessity because it's beyond the time for us to recognize that what China is doing and other are doing...they are basically taking what we had here."

China has been able to move up on the world stage because it generated a lot of good paying, middle-class jobs by boosting manufacturing, while manufacturing has become less of a priority in the US in recent decades, Goncalves said.

"Manufacturing not only creates a lot of goods and wealth, but also creates a willing group of consumers, a middle class, that moves things and we for some strange reason in the last 20 years decided to walk away from that and to value things that don't really have that much value," he said.

Instead of focusing on creating wealth through Wall Street, boosting investment in infrastructure and manufacturing will put the country on more solid footing for recovery, according to Goncalves.

"By doing the obvious we can bring all of that back and we can do that in a very environmentally friendly, very socially friendly way.," he said. "That's my strategy, if you want to call that a strategy."