Cleveland-Cliffs Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Adjusted EBITDA: $286 million, a significant increase from the previous quarter, marking the best quarter in two years.

Shipments: Over 4 million tons, down sequentially due to maintenance outages but expected to rise above 4.3 million tons in Q3.

Average Selling Price: Increased by $76 per ton in Q2, with expectations for a further increase of $55 per ton in Q3.

Free Cash Flow: Returned to positive after two years of negative cash flow, driven by improved operational performance and working capital management.

Q3 Adjusted EBITDA Guidance: Projected at approximately $575 million, anticipated to be the strongest quarter in three years.

2Strategic Updates and Business Highlights

Automotive Sector: Strong recovery in automotive demand, with Cleveland-Cliffs recognized as a top supplier by major automotive manufacturers like Toyota and General Motors. Steel shipments to automotive clients reached their highest levels in two years.

Operational Improvements: Enhanced utilization of finishing lines and successful multiyear contracting strategies contributing to better pricing and cost management.

Trade Policies: Positive impact from U.S. trade policies, particularly Section 232, which have supported domestic steel production and manufacturing investment.

Safety Record: Continued focus on safety with a best-in-class total recordable injury rate, leading to reduced workers' compensation expenses.

Leadership Transition: Celso Goncalves appointed as President and CFO, reflecting his significant contributions to the company.

3Forward Guidance and Outlook

Q3 and Q4 Expectations: Anticipated continued improvement in EBITDA and operational performance, with Q4 expected to outperform Q3 due to higher prices, lower costs, and increased shipping volumes.

Long-term Outlook: The company expects to reach a leverage target of below 2.5x by next year, driven by ongoing cash flows and asset sales.

Contract Renewals: Significant potential for improved pricing on fixed-price contracts, with negotiations expected to yield higher prices due to current market conditions.

4Bad News, Challenges, or Points of Concern

Maintenance Outages: Q2 results were impacted by maintenance outages, which constrained production and shipments.

Canadian Operations: While improvements have been noted, concerns remain regarding the competitiveness of galvanizing lines in Canada without further protective measures.

Market Dynamics: The company faces competitive pressures from global steel markets, particularly with excess capacity and pricing pressures from imports.

Negotiation Risks: The company is cautious about negotiations with counterparties, ensuring that any potential transactions meet their valuation thresholds.

5Notable Q&A Insights

Contract Reset Timing: The resetting of non-auto fixed-price contracts will begin in the second half of the year, with expectations for significant price increases based on current market conditions.

Cost Management: Further cost reductions are anticipated in Q4, driven by improved production schedules and operational efficiencies.

Automotive Market Dynamics: Approximately half of the expected shipment increase in Q3 is attributed to improved automotive demand, with ongoing discussions about capacity restarts hinging on sustained automotive production in the U.S.

Debt Reduction Focus: The company emphasized that debt paydown will be a priority, supported by free cash flow generation and asset sales. Overall, Cleveland-Cliffs is positioned for a strong second half of 2026, with improving financial metrics, strategic advantages in the automotive sector, and a commitment to operational efficiency and safety. However, challenges remain, particularly in navigating competitive pressures and ensuring favorable contract negotiations.