10-Q: Cleveland-Cliffs Navigates Volatile Steel Market

Cleveland-Cliffs reports a net loss for Q3 2025 and the first nine months, despite higher HRC pricing and strategic debt refinancing, while navigating inconsistent demand and operational adjustments.

Summary

• Net loss attributable to Cliffs shareholders was $(251) million for the three months ended September 30, 2025, compared to $(244) million for the same period in 2024.
• Net loss attributable to Cliffs shareholders was $(1,235) million for the nine months ended September 30, 2025, compared to $(313) million for the same period in 2024.
• Revenues increased by $165 million (3.6%) to $4,734 million for Q3 2025, but decreased by $563 million (3.8%) to $14,297 million for 9M 2025.
• Adjusted EBITDA for Q3 2025 increased to $143 million from $122 million in Q3 2024, but for 9M 2025, it significantly decreased to $58 million from $854 million in 9M 2024.
• Steel shipments increased by 5% in Q3 2025 and 6% in 9M 2025 compared to prior-year periods.
• The average selling price per ton of steel products decreased to $1,032 in Q3 2025 from $1,045 in Q3 2024.
• The company completed the Stelco Acquisition on November 1, 2024, expanding its Canadian presence and diversifying its customer base.
• Issued $850 million of 7.625% Senior Guaranteed Notes due 2034 on September 8, 2025, and $850 million of 7.500% Senior Notes due 2031 on February 6, 2025.
• Redeemed $685 million of 2027 Senior Notes on October 3, 2025, and issued an additional $275 million of 7.625% Senior Notes due 2034 on October 10, 2025.
• A lawsuit by U.S. Steel and Nippon Steel against Cliffs, Mr. Goncalves, and Mr. McCall was voluntarily dismissed with prejudice on September 3, 2025, with no financial consideration exchanged.
• Six operations were indefinitely idled or permanently closed in 2025 due to financial underperformance or excess inventory, including Dearborn Works facilities, Steelton, Conshohocken, Riverdale, Minorca mine, and partially Hibbing Taconite mine.
• An immaterial error related to the accrual for certain employment costs was identified, resulting in an understatement of Costs of goods sold in prior periods, with adjustments made to Accrued employment costs, Deferred income taxes, and Retained earnings (deficit) as of December 31, 2024.

Sentiment

Score: 4

Explanation: While Q3 showed some sequential improvement in operating metrics and strategic initiatives are underway (Stelco integration, asset sales exploration, rare earths, MOU), the year-to-date financial performance (significant net loss and Adjusted EBITDA decline) is poor. The company is navigating a volatile market with operational adjustments (idling facilities) and increased debt. The dismissal of the lawsuit is a positive, but the overall financial results for the nine months are concerning.

Positives

• Revenues for the three months ended September 30, 2025, increased by $165 million (3.6%) compared to the prior-year period.
• Operating loss for Q3 2025 improved to $(204) million from $(261) million in Q3 2024.
• Adjusted EBITDA for Q3 2025 increased to $143 million from $122 million in Q3 2024.
• Steel shipments increased by 5% in Q3 2025 and 6% in 9M 2025 compared to prior-year periods.
• Gross margin increased by $60 million during Q3 2025, driven by product mix and lower maintenance spend.
• The lawsuit by U.S. Steel and Nippon Steel against Cliffs, Mr. Goncalves, and Mr. McCall was voluntarily dismissed with prejudice on September 3, 2025, with no financial consideration exchanged.
• The Stelco Acquisition was completed, expanding the company's presence in Canada and diversifying its customer base.
• The company maintains strong liquidity of $3.1 billion as of September 30, 2025, and a long maturity runway for its outstanding debt.
• New GHG emissions reduction targets were announced, building on the successful achievement of prior 2030 targets ahead of schedule.
• The company is the first and only producer of HBI in the Great Lakes region, enhancing operational efficiency and lowering carbon intensity.
• A 'Buy American' incentive program was launched for employees to support domestically produced vehicles.
• A Memorandum of Understanding was signed with a major global steel producer to leverage the company's U.S. footprint and trade-compliant operations.

Negatives

• Net loss attributable to Cliffs shareholders significantly increased to $(1,235) million for the nine months ended September 30, 2025, from $(313) million for the same period in 2024.
• Revenues decreased by $563 million (3.8%) for the nine months ended September 30, 2025, compared to the prior-year period.
• Operating loss for 9M 2025 significantly increased to $(1,248) million from $(298) million in 9M 2024.
• Adjusted EBITDA for 9M 2025 significantly decreased to $58 million from $854 million in 9M 2024.
• Gross margin decreased by $990 million for the nine months ended September 30, 2025.
• Inconsistent buying behavior from non-automotive customers impacted demand.
• Lower realized revenue rates (approximately $550 million) contributed to the revenue decrease in 9M 2025.
• Interest expense, net increased by $51 million in Q3 2025 and $207 million in 9M 2025 due to increased outstanding borrowings.
• Six operations were indefinitely idled or permanently closed in 2025 due to financial underperformance or excess inventory.
• An immaterial error related to the accrual for certain employment costs was identified, resulting in an understatement of Costs of goods sold in prior periods.
• A five-year contract to supply semi-finished steel slabs, representing approximately 10% of sales volume, became unprofitable and concludes in December 2025.

Risks

• Continued volatility of steel, scrap metal, and iron ore market prices, which directly and indirectly impact product selling prices.
• Uncertainties associated with the highly competitive and cyclical steel industry and reliance on demand from the automotive industry.
• Potential weaknesses and uncertainties in global economic conditions, excess global steelmaking capacity and production, prevalence of steel imports, reduced market demand, and oversupply of iron ore.
• Severe financial hardship, bankruptcy, temporary or permanent shutdowns, or operational challenges of major customers, key suppliers, or contractors.
• Risks related to U.S. government actions and other countries' reactions to Section 232, the United States-Mexico-Canada Agreement, and other trade agreements, tariffs, treaties, or policies.
• Impacts of existing and changing governmental regulation, including actual and potential environmental regulations relating to climate change and carbon emissions, and related costs and liabilities.
• Ability to maintain adequate liquidity, manage the level of indebtedness, and ensure the availability of capital.
• Adverse changes in credit ratings, interest rates, foreign currency rates, and tax laws.
• Challenges to successfully implementing the business strategy to achieve operating results in line with guidance.
• The outcome of, and costs incurred in connection with, lawsuits, claims, arbitrations, or governmental proceedings.
• Supply chain disruptions or changes in the cost, quality, or availability of energy sources, critical raw materials, and supplies.
• Problems or disruptions associated with transporting products to customers, moving manufacturing inputs internally, or suppliers transporting raw materials.
• The risk that the cost or time to implement a strategic or sustaining capital project may prove to be greater than originally anticipated.
• Ability to consummate any public or private acquisition or divestiture transactions and realize anticipated benefits or estimated future synergies.
• Uncertainties associated with natural or human-caused disasters, adverse weather conditions, critical equipment failures, and other unexpected events.
• Cybersecurity incidents relating to, disruptions in, or failures of, information technology systems.
• Liabilities and costs arising in connection with any business decisions to temporarily or indefinitely idle or permanently close an operating facility or mine.
• Ability to realize the anticipated synergies or other expected benefits of the Stelco Acquisition, as well as the impact of additional liabilities and obligations incurred.
• Level of self-insurance and ability to obtain sufficient third-party insurance to adequately cover potential adverse events and business risks.
• Uncertainties associated with the ability to meet customers' and suppliers' decarbonization goals and reduce GHG emissions.
• Challenges to maintaining social license to operate with stakeholders, including impacts on local communities and reputational impacts.
• Actual economic mineral reserves or reductions in current mineral reserve estimates, and any title defect or loss of any lease, license, option, easement, or other possessory interest for any mining property.
• Ability to maintain satisfactory labor relations with unions and employees.
• Unanticipated or higher costs associated with pension and OPEB obligations.
• Uncertain availability or cost of skilled workers to fill critical operational positions and potential labor shortages.
• Ability to complete the requisite technical and economic studies to determine the economic potential for extraction of rare earths at properties, and the risk that rare-earth extraction may be uneconomical.
• Potential significant deficiencies or material weaknesses in internal control over financial reporting.

Future Outlook

The company expects domestic steel demand to grow, supported by recently implemented steel and automotive tariffs, improving end-user demand, declining interest rates, and incremental demand from government legislation and manufacturing on-shoring. It anticipates benefiting for years from these tariffs. Healthier domestic vehicle production is expected to increase demand for automotive-grade steel, where the company is a leading supplier. The supply of busheling scrap is projected to tighten, enhancing the company's competitive advantage due to its blast furnace footprint. The electrical steel business (GOES and NOES) is expected to achieve strong profitability due to grid modernization and EV adoption. The Toledo direct reduction plant is anticipated to continue supporting operational efficiency. The company expects to generate healthy free cash flow in the coming years, which will be used to deleverage the balance sheet. Total cash used for capital expenditures in the next 12 months is estimated at approximately $700 million, primarily for sustaining capital. A Memorandum of Understanding with a major global steel producer is expected to be highly accretive. The company is exploring rare earths potential at its mining assets, though economic viability is not assured. New GHG emissions reduction targets include a 30% reduction in Scope 1 and 2 GHG emissions intensity by 2035, a 20% reduction in material upstream Scope 3 GHG emissions intensity by 2035, and a long-term target of near net zero by 2050.

Management Comments

• "We believe that steel tariffs play a crucial role in protecting the U.S. economy, national security and industrial base from violators of fair trade."
• "We believe that the steel tariffs recently implemented by President Trump are critical to addressing global overproduction issues, confronting unfair trade practices and supporting a healthy domestic steel market."
• "As a leading domestic steel producer, we expect to benefit for years to come from the recently implemented tariffs, not only for steel but also for the automotive industry."
• "We believe it is crucial for Canada to put measures in place to protect its domestic steel industry in order to preserve the Canadian economy and national security."
• "Our recent changes allow us to streamline our operations and enhance efficiency, with minimal expected impact to our flat-rolled steel output."
• "As a leading supplier of automotive-grade steel in the U.S., we expect to benefit from healthier domestic vehicle production over the coming years as we continue to be an established and reliable supplier."
• "With our proven ability to integrate acquired assets and capture synergies, along with our powerful partnership with our union and non-union employees, we are confident in our ability to achieve identified synergies related to the Stelco Acquisition."
• "As an American-based company with desirable assets, we are favorably positioned to potentially benefit from asset sales."
• "The Memorandum of Understanding reflects rising interest in Cliffs amid the resurgence of U.S. manufacturing and should enable smooth onboarding for downstream industrial customers moving production from the party's home country to the United States."
• "If successful, it would align Cleveland-Cliffs with the broader national strategy for critical material independence."
• "We have made significant progress in reducing our emissions on a per ton basis."
• "We expect to generate healthy free cash flow in the coming years and intend to utilize it to deleverage our balance sheet."

Industry Context

The steel market in Q3 2025 benefited from higher Hot-Rolled Coil (HRC) pricing, averaging $843 per net ton (up 24% from Q3 2024), and lower import levels, although non-automotive demand remained inconsistent. The U.S. steel industry continues to face challenges from global overcapacity, unfair trade practices, and dumping of steel. North American light vehicle production increased to approximately 3.9 million units in Q3 2025 (from 3.8 million in Q3 2024), with U.S. light vehicle sales averaging a seasonally adjusted annualized rate of 16.3 million units, indicating healthy consumer demand. The average age of U.S. light vehicles reached a record 12.8 years, supporting replacement demand. New 25% tariffs on imported automobiles and parts are expected to boost demand for domestically produced vehicles and steel. The price for busheling scrap, a key input for Electric Arc Furnaces (EAFs), averaged $461 per long ton in Q3 2025 (up 13% from Q3 2024), with supply expected to tighten. The resurgence of U.S. manufacturing and focus on critical material independence (e.g., rare earths) are also shaping the industry landscape.

Comparison to Industry Standards

• The company's average Scope 1 and 2 emissions of integrated mills were 1.58 metric tons of CO2e per metric ton of crude steel produced in 2024, which is 27% lower than the global industry average.
• Automotive steel is generally higher quality, more operationally and technologically intensive to produce, and requires significantly more devotion to customer service compared to other steel end markets.
• The company's fully-integrated steel enterprise provides an inherent cost advantage in flat-rolled steel compared to peers who rely on more unpredictable and unreliable raw material sourcing strategies.
• The unique value of the company's HBI facility is highlighted as recent trade discussions could result in tariffs on pig iron or other imported raw materials for competitors who rely on international suppliers.

Legal Proceedings

• U.S. Steel Nippon Steel Litigation: A lawsuit filed on January 6, 2025, by U.S. Steel and Nippon Steel Corporation against Cleveland-Cliffs Inc., Lourenco Goncalves, and David McCall, alleging an unlawful agreement to oppose the sale of U.S. Steel to any buyer other than Cliffs, monopolization of certain steel markets (NOES, GOES, iron ore pellets, exposed automotive steel), and federal anti-racketeering violations. The plaintiffs sought monetary relief (treble and punitive damages) and a preliminary injunction. This lawsuit was voluntarily dismissed with prejudice on September 3, 2025, with no exchange of financial consideration.
• Environmental Matters: The company is subject to various claims and legal proceedings related to environmental remediation obligations at active and closed operations. Potential remediation expenditures are estimated for probable sites, but no material adverse effect on consolidated financial condition, results of operations, or cash flows is currently expected.
• Other Contingencies: Various pending and potential claims against the company and its subsidiaries involving antitrust, product liability, personal injury, commercial, mining royalties, employee benefits, and other matters arising in the ordinary course of business. No material adverse effect on consolidated financial position, results of operations, or cash flows is expected from these contingencies.

Related Party Transactions

• SunCoke Middletown: The company consolidates SunCoke Middletown as a Variable Interest Entity (VIE) and purchases all coke and electrical power generated from its plant under long-term supply agreements through 2032.
• Balances with non-Guarantor subsidiaries for the obligated group as of September 30, 2025: Accounts receivable, net of $741 million and Accounts payable of $(1,049) million.
• Balances with other related parties for the obligated group as of September 30, 2025: Accounts receivable, net of $11 million and Accounts payable of $(13) million.
• For the nine months ended September 30, 2025, the obligated group had Revenues of $64 million and Cost of goods sold of $56 million with other related parties.

Stakeholder Impact

• Shareholders: Experienced a significant net loss for the nine months ended September 30, 2025, but Q3 showed some operational improvement. Strategic initiatives and the dismissal of a major lawsuit could positively impact future value. The company has an active share repurchase program.
• Employees: Benefit from a 'Buy American' incentive program and strong partnerships with unionized workforces (USW, UAW, IAM). Operational adjustments, such as idling facilities, may impact some employees.
• Customers: The Stelco acquisition diversified the customer base. The company is a leading supplier to the automotive sector and offers a full suite of flat steel products.
• Suppliers: Benefit from voluntary supply chain finance programs. The company has multi-year raw material supply agreements, some with minimum quantity requirements.
• Creditors: The company's long-term debt increased, but it has undertaken debt refinancing and redemptions. It maintains compliance with ABL facility covenants and has substantial secured debt capacity.

Next Steps

• Finalize the valuation of assets acquired and liabilities assumed related to the Stelco Acquisition during the measurement period.
• Continue to work with automotive partners to ensure the availability of domestically produced, automotive-grade steel.
• Explore the potential sale of certain non-core operating assets and recently idled facilities/inactive sites.
• Conduct additional technical and economic studies to determine the economic potential for rare-earth extraction at properties.
• Utilize generated healthy free cash flow to deleverage the balance sheet.
• Seek to redeem or repurchase outstanding senior notes from time to time.
• Anticipate total cash used for capital expenditures during the next 12 months to be approximately $700 million, primarily for sustaining capital.

Key Dates

Recommendation

While the year-to-date financial performance shows a significant net loss and reduced Adjusted EBITDA, the third quarter indicates some operational stabilization and strategic progress. The dismissal of the U.S. Steel lawsuit removes a significant overhang. The company is actively pursuing strategic initiatives like asset sales, rare earth exploration, and leveraging the Stelco acquisition, which could unlock future value. However, the steel market remains volatile, and the impact of operational adjustments and increased debt needs careful monitoring. A 'Hold' recommendation reflects the mixed financial results, the potential for future strategic upside, and the ongoing market uncertainties.

Keywords

Steelmaking, Iron Ore, Automotive Steel, Tariffs, Debt, Senior Notes, Acquisitions, Stelco, ESG, GHG Emissions, Capital Allocation, Liquidity, Supply Chain, Raw Materials, Financial Performance, Q3 2025, Cleveland-Cliffs