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Cleveland-Cliffs again raises full-year guidance amid strong demand

Highlights

EBITDA guidance raised to $5.5 billion

Ships 4.2 million st in Q2 boosted by strong demand, acquisition

Cliffs reported Q2 net income of $795 million; sales of $5 billion

Cleveland-Cliffs has again increased its full-year 2021 adjusted EBITDA guidance to $5.5 billion from earlier estimates of $4 billion and $5 billion, as US steel demand and pricing is expected to remain strong through the end of the year, company executives said July 22.

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Cliffs shipped 4.2 million st of steel to external customers in the second quarter, up from 4.1 million st in Q1, and substantially above the 614,000 st shipped in the year-ago quarter, boosted by strong demand and its late-2020 acquisition of substantially all of ArcelorMittal USA's former assets.

The company's Q2 product volume comprised 33% hot-rolled coil shipments, 30% coated, 17% cold-rolled, 6% plate, 4% stainless and electrical, and 10% other products, including slabs and rail, Cliffs reported.

Cliffs' overall Q2 steelmaking revenues of $4.9 billion included 40% of sales to distributor and converter markets, 27% of sales to the infrastructure and manufacturing market, 23% of sales to the automotive market, and 10% of sales to steel producers, the company said.

"Demand for steel is very strong across all sectors, and strong demand supports strong prices," Cliffs CEO Lourenco Goncalves said during the company's Q2 conference call with industry analysts July 22. "Q4 2020 was supposed to be the peak for steel prices, then Q1 2021 and then again in Q2. Well, we are in Q3, and the reality is demand is relentless."

Sources in the hot-rolled coil market have continued to report limited availability from domestic producers as HRC pricing has hit new highs in recent weeks. The daily Platts TSI US HRC index was set at $1,827.75/st on an ex-works Indiana basis July 21, down $2 on the day, but up roughly 315% compared with late July 2020, when HRC prices ended the month at a low of $440/st.

With the ongoing global semiconductor chip shortage impacting automotive production, Goncalves said Cliffs was able to take advantage of the reduced demand from these customers in Q2 and diverted automotive volume to spot buyers or to other contract clients willing to pay market-level prices.

Cliffs' direct automotive shipments were about 1.2 million st in Q2, about 300,000 st less than what the company anticipated back in March, Cliffs CFO Keith Koci said.

Going forward, Goncalves said he expects automotive original equipment manufacturers will better manage supply chains in the wake of the chip shortage and other supply chain issues exacerbated by the coronavirus pandemic.

"They will start to manage their supply chains a little better, with more emphasis on real things, like being close to the supplier, understanding that short term is better, not rely on imports as mandatory, so I'm very optimistic that things will get better," he said.

Overall, Cliffs reported Q2 net income of $795 million on net sales of $5 billion, an improvement from a net loss of $108 million on revenue of $1.1 billion in the year-ago quarter, prior to its acquisition of the ArcelorMittal US assets.