Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Cleveland Cliffs has forecasted H2 2020 to be better than the first half of the year owing to the demand picking up earlier than previously projected. 


In H2 2020, the steelmaker plans to benefit from its new capabilities and expanded footprint, through its acquisition of AK Steel in early 2020, as most of its idled plants have restarted regular operations. Inoperative costs are anticipated to be below $50mn during Q3 2020 and become nominal by Q4 2020, preceding substantial unit cost recovery, the company indicated in its Q2 2020 earnings report that was released on Thursday.


Based on the current state of the market, however, Cliffs awaits positive free cash flow in H2 2020 as well as needed capital expenditure to conclude the construction of its hot briquetted iron (HBI) plant in Toledo, Ohio. The company plans to produce more than $100mn from working capital during H2 2020. Capital spending is projected at $250mn for the balance of 2020 including about $110mn outstanding in HBI costs and $25mn in capitalized interest. 


Lourenco Goncalves chairman, president, and chief executive officer, Cleveland Cliffs said that Q2 2020 was out of the ordinary as COVID-19’s full impact hit the industry. The company was unable to ship to customers such as the auto industry. 


The company’s success in maintaining pellet sales during Q2 2020, Goncalves added, was also vital to Cliffs’ financial results.


Pellet production for H1 2020 was 6.9mn gt down from 9.6mn gt of pellets produced during H1 2019. The iron ore and steel producer generated 2.04mn gt (2.07mn mt) of pellets in Q2 2020 compared to 5.2mn gt of pellets in Q2 2019 within its mining and pelletizing sector.


The company’s mining and pelletizing sales volume declined to 6.89mn gt in H1 2020 from 7.78mn gt during H1 2019. Sales volume decreased to 4.76mn gt in Q2 2020 from 6.23mn gt in the same period last year.  


Cliffs shipped 818,000nt of flat-rolled steel in H1 2020 and 619,000nt of the material in Q2 2020. In Q1 2020 199,000nt of flat-rolled steel was shipped as of March 13, 2020, when the AK steel merger took effect. Prior comparable figures are not available. 


The company recorded total revenue of $1.42bn in H1 2020 compared to $900mn in H1 2019. Revenues reported for Q2 2020 were $1.09bn compared with $743mn of consolidated revenue in Q2 2019. Cliffs reported a net income loss of $157mn in H1 2020 compared with a net income of $139mn in H1 2019. In Q2 2020, the company reported a net loss of $108mn compared with a net income of $161mn in Q2 2019.


Cliffs reported an adjusted EBITDA loss of $59mn in H1 2020 compared to an adjusted EBITDA of $270mn in H1 2019. The company’s adjusted EBITDA loss was $82mn in Q2 2020 compared to an adjusted EBITDA of $248mn in Q2 2019. The Q2 amount comprises $159mn of idle costs and $32mn in the removal of corporate margin linked with intercompany pellet sales.

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