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

Cleveland-Cliffs expects its Q4 2020 earnings to stay level with those reported in the same quarter last year.


Lourenco Goncalves, Cliff’s chairman, president and chief operating officer attributed the improved outlook to normalized operating rates, strong automotive sector orders, and current pricing, during Cliffs’ earnings call on Friday. He added that ArcelorMittal USA’s acquisition will also close during this quarter.


The company’s high briquetted iron (HBI) plant in Toledo, Ohio will begin production in November, Goncalves confirmed, adding that the HBI production would first focus on internal utilization volumes but still be able to provide tonnage for EAF clients. 


HBI is expected to be available to outside clients by Q2 2021 and will not be sold to blast furnaces. He noted that the metallic feedstock will give an alternative to the 5mn mt of pig iron purchased by EAFs annually from Brazil and Russia. 


Cliffs has opted not to sign any long-term contracts for HBI with clients to maintain flexibility as it leverages the volumes in its own operations against scrap costs and expects to service only US customers including Steel Dynamics. 


The firm will continue focusing on the high-margin automotive space for steel sales, with Cliffs selling 73pc of its steel to this sector in Q3 2020. The company is also likely to receive an internal competitive advantage with ArcelorMittal USA consuming 90pc of all its pellet output. Goncalves added that the company’s stance on environmental compliance will influence automotive buyers to reduce their purchases from non-compliant companies. 


Steel shipments flat

Cleveland-Cliffs’ steel and manufacturing shipment volumes declined in the January-September period to 1.9mn nt from the same nine months a year ago when the AK Steel unit was not yet acquired by the company. For Q3 2020 the volumes were flat at 1.1mn nt from the same quarter last year.


The steel division’s operating revenues reached $2.2bn for the January-September and $1.3bn in Q3 2020, while its average net selling price per ton in Q3 2020 and January-September stood at 

$1,006/nt and $1021/nt, respectively. 



For the nine-month period in 2020, Cleveland-Cliffs’ sales from its mining and pelletizing division declined by 12.8pc to 11.8mn gt from January-September 2019, while production slipped by 22.4pc to 11.4mn gt in the same period under comparison. 


In Q3 2020, production fell by 11.6pc to 4.6mn gt from the same prior-year period. Sales volumes during the quarter fell by 14.7pc to 4.9mn gt from Q3 2019. Of the total sales volume, 24.4pc or 1.2mn gt were intercompany sales. 


Mining revenue decreased by 17.1pc to $1.2bn in the first nine months of 2020 from the same period in 2019. The cost of goods sold was 79.7pc of revenues in the first nine months in 2020 against 69.1pc in the same period in 2019. Freight costs of $94.3mn accounted for 9.5pc of the $987.8mn cost of goods sold.


The division’s revenue decreased by 11.9pc to $520.3mn in Q3 2020 against the same quarter a year ago.


The realized production revenue rate for January-September 2020, slipped by 6.1pc to $96.98/gt from $103.26/gt in the same nine-months in 2019. The revenue increased by 2.5pc to $98.06/gt in Q3 2020 compared to $95.65/gt in the corresponding quarter last year.


For the nine-month 2020 period, the total cost of goods sold increased by 9.5pc to $75.72/gt from $69.15/gt as economies of scale declined. With lower volumes, the total cost of goods sold increased by 8pc to $72.18/gt in the Q3 2020 period against $66.85/gt in the same quarter a year ago.


Consolidated financials

Cleveland-Cliffs reported total revenue of $1.6mn in Q3 2020, up three-fold from the $556mn in the same quarter last year. The increase was driven by the acquisition of AK Steel. However, net income dropped substantially to $2mn in Q3 2020 from $91mn in the prior-year quarter due to acquisition costs, severance, and inventory amortization. 


The company’s total adjusted EBITDA decreased by 83.8pc to $67mn in the January-September 2020 period compared to $413.7mn in the same year-to-date period in 2019. EBITDA decreased by 12.4pc to $126.3mn in Q3 2020 from the same quarter in 2019.

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