US-based iron ore and steel producer Cleveland-Cliffs Inc. has recently begun to apply surcharges to client invoices for steel made with hot-briquetted iron that is made using natural gas, Lourenco Goncalves, the company's CEO, chairman and president, said on a July 25 earnings call.
The production process for hot-briquetted iron (HBI), a type of reduced iron used in steelmaking, usually involves coal as a reducing agent to separate oxygen from iron ore, a major source of carbon dioxide emissions in the industry. Cleveland-Cliffs produces HBI using natural gas at a site in Toledo, Ohio.
Cleveland-Cliffs' HBI production process releases less carbon emissions compared to the traditional coal method, which should make Cleveland-Cliffs' steel products worthy of a surcharge, Goncalves said during the earnings call.
"We have recently introduced in our invoices to our clients what's called the 'Cliffs H' surcharge with a $40-per-ton surcharge applied to each [short] ton of steel made with Cliffs HBI," Goncalves said. "We deserve to be paid for a characteristic of our steel that truly differentiates us, particularly when compared to other major suppliers of steel to the automotive industry in the United States, in Europe, in Japan, in South Korea, in China or anywhere else throughout the entire world."
The cost to end consumers is minimal, Goncalves said.
"We also believe that the ... Cliffs H surcharge should be passed along by the car manufacturers to the final consumer," Goncalves said. "That would only increase the window sticker [manufacturer's suggested retail price] of a car by less than 0.1%."
The use of natural gas in the company's HBI production has been instrumental in cutting Cleveland-Cliffs' overall emissions while also helping to slash production costs in light of relatively low prices, executives said.
"With natural gas prices where they have been, we are producing HBI at a cost of less than $200 per metric ton," Goncalves said. "Our [natural gas-based] HBI has not only been a carbon intensity reduction agent but also a productivity- and margin-enhancing agent."
The next avenue for steel decarbonization will be the use of hydrogen, Goncalves said.
"As of today, equivalent units of hydrogen gas are about 10 times more expensive than natural gas," Goncalves said. "As hydrogen becomes more and more economical, we will be able to implement it throughout our entire footprint."
Cleveland-Cliffs recorded revenues of $5.98 billion in the second quarter, down 5.6% year over year, with adjusted EBITDA decreasing by 31.5% to $775 million, the company said in a July 24 news release. Steel shipments totaled 4.2 million net short tons for the quarter, up 15.4% compared to the second quarter of 2022.
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