10-Q: Cleveland-Cliffs Reports Significant Q2 Loss Amidst Market Headwinds and Strategic Idlings

Cleveland-Cliffs Inc. reported a substantial net loss and decline in Adjusted EBITDA for the second quarter and first half of 2025, driven by lower steel selling prices and operational adjustments, despite increased steel shipments.

Summary

• Net loss attributable to Cliffs shareholders was $483 million ($0.97 per diluted share) for the three months ended June 30, 2025, a significant decline from a $2 million net income in the prior-year period.
• For the six months ended June 30, 2025, net loss attributable to Cliffs shareholders widened to $978 million ($1.97 per diluted share) from $65 million in the same period of 2024.
• Total revenues decreased by 3% to $4,934 million for the three months ended June 30, 2025, and by 7% to $9,563 million for the six months ended June 30, 2025, compared to prior-year periods.
• Adjusted EBITDA plummeted to $97 million for Q2 2025, down from $323 million in Q2 2024, and was a negative $77 million for the first half of 2025, compared to $737 million in the first half of 2024.
• Steel shipments increased by 8% to 4,290 thousand net tons in Q2 2025 and by 6% to 8,430 thousand net tons for the first half of 2025.
• Average selling price per ton of steel products decreased by 9.8% to $1,015 in Q2 2025 and by 13.2% to $998 for the first half of 2025.
• The company recorded $86 million in restructuring and other charges and $39 million in asset impairment for Q2 2025, primarily due to the indefinite idling of Steelton, Conshohocken, and Riverdale facilities.
• Cash used in operating activities was $306 million for the six months ended June 30, 2025, a significant reversal from $661 million provided in the prior-year period.
• Free cash flow was negative $570 million for the first half of 2025, compared to positive $322 million in the first half of 2024.
• Long-term debt increased to $7,727 million as of June 30, 2025, from $7,065 million at December 31, 2024, following the issuance of $850 million in 7.500% 2031 Senior Notes.
• The company's liquidity stood at $2.7 billion as of June 30, 2025, combining cash and ABL Facility availability.
• No common shares were repurchased during the three and six months ended June 30, 2025, with $1.4 billion remaining authorization under the active share repurchase program.

Sentiment

Score: 3

Explanation: The sentiment is negative due to substantial net losses, a significant decline in Adjusted EBITDA, and negative free cash flow, indicating a challenging financial period. While there are strategic positives like increased shipments, tariff benefits, and environmental progress, the core financial performance has deteriorated significantly, leading to a low sentiment score.

Positives

• Steel shipments increased by 8% in Q2 2025 and 6% in the first half of 2025, indicating higher volume.
• Domestic HRC pricing averaged $910 per net ton in Q2 2025, a 16% increase compared to Q2 2024, and finished steel import levels declined, supporting domestic steel pricing.
• U.S. light vehicle sales showed healthy consumer demand, with a seasonally adjusted annualized rate reaching 17.3 million units sold during Q2 2025.
• The average age of light vehicles on U.S. roads reached an all-time high of 12.8 years, expected to support future demand for vehicle replacement.
• The company completed the Stelco Acquisition on November 1, 2024, expanding its presence in Canada and diversifying its customer base.
• Commissioned a new state-of-the-art vertical stainless bright anneal line at Coshocton Works, a $150 million capital investment expected to improve efficiency and product quality.
• Achieved prior GHG emissions reduction targets ahead of schedule and set new ambitious goals: 30% reduction in Scope 1 and 2 GHG emissions intensity by 2035, 20% reduction in material upstream Scope 3 GHG emissions intensity by 2035, and near net zero by 2050.
• Maintained healthy liquidity of $2.7 billion and approximately $3.2 billion in secured debt capacity, providing financial flexibility.
• The five-year contract to supply semi-finished steel slabs, which has become unprofitable, concludes in December 2025, offering an opportunity to shift to higher-margin business.

Negatives

• Reported significant net losses for both the three and six months ended June 30, 2025, reversing prior-year profitability or widening losses.
• Adjusted EBITDA saw a drastic decline, turning negative for the six months ended June 30, 2025, indicating a substantial drop in operational profitability.
• Gross margin decreased significantly due to lower average selling prices, predominantly from a lower direct automotive mix and lower index prices.
• Cash flow from operating activities turned negative, indicating that operations are consuming cash rather than generating it.
• Free cash flow was negative $570 million for the first half of 2025, a substantial deterioration from the positive free cash flow in the prior-year period.
• Increased long-term debt by $662 million since December 31, 2024, primarily due to the issuance of new senior notes.
• Weak light vehicle production in North America (4.0 million units in Q2 2025 vs 4.1 million in Q2 2024) negatively impacted demand.
• The company made decisions to fully or partially idle six operations (Dearborn Works, Conshohocken, Riverdale, Steelton, Minorca mine, Hibbing Taconite mine) due to weak automotive production, financial underperformance, or excess inventory, leading to significant charges.
• Incurred $86 million in restructuring and other charges and $39 million in asset impairment for Q2 2025, reflecting costs associated with operational adjustments.

Risks

• Continued volatility of steel, scrap metal, and iron ore market prices directly and indirectly impacts product prices.
• The highly competitive and cyclical nature of the steel industry and reliance on demand from the automotive industry pose significant risks.
• Potential weaknesses and uncertainties in global economic conditions, excess global steelmaking capacity, prevalence of steel imports, and oversupply of iron ore.
• Severe financial hardship, bankruptcy, temporary or permanent shutdowns, or operational challenges of major customers, key suppliers, or contractors could disrupt operations or reduce demand.
• Risks related to U.S. government actions and other countries' reactions concerning Section 232, USMCA, and other trade agreements, tariffs, treaties, or policies.
• Impacts of existing and changing governmental environmental regulations, including those related to climate change and carbon emissions, and associated costs and liabilities.
• Ability to maintain adequate liquidity, the level of indebtedness, and the availability of capital could limit financial flexibility and cash flow.
• Challenges in successfully implementing 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, including the Mesabi Metallics Adversary Proceeding.
• Supply chain disruptions or changes in the cost, quality, or availability of energy sources, critical raw materials, and manufacturing equipment.
• Problems or disruptions associated with transporting products to customers or raw materials to the company.
• The risk that the cost or time to implement strategic or sustaining capital projects may exceed original anticipation.
• 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.
• Uncertainties associated with the ability to meet customers' and suppliers' decarbonization goals and reduce GHG emissions in alignment with announced targets.
• Challenges to maintaining social license to operate with stakeholders, including reputational impacts of operating in a carbon-intensive industry.
• Unanticipated or higher costs associated with pension and OPEB obligations.
• Uncertain availability or cost of skilled workers and the ability to attract, hire, develop, and retain key personnel.

Future Outlook

The company expects domestic steel demand to grow, supported by recently implemented steel and automotive tariffs, improving end-user demand, and incremental steel demand from government legislation and manufacturing on-shoring. It anticipates benefiting from healthier domestic vehicle production and increased demand for domestically produced vehicles due to new automotive tariffs. The company projects generating healthy free cash flow in the coming years, which it intends to utilize for deleveraging the balance sheet. Total cash used for capital expenditures during the next 12 months is anticipated to be approximately $700 million, primarily for sustaining capital. The five-year contract to supply semi-finished steel slabs concludes in December 2025, providing an opportunity to shift to higher-margin business. The company is assessing the impact of the 'One Big Beautiful Bill Act' enacted on July 4, 2025, which includes significant tax provisions.

Management Comments

• We continued to navigate volatile but improving market conditions throughout the second quarter of 2025.
• Steel market conditions in the second quarter of 2025 benefited from higher HRC pricing and lower import levels, but demand remained impacted by weak light vehicle production and inconsistent buying behavior from customers.
• We expect domestic steel demand to grow, as recently implemented steel and automotive tariffs support demand for domestically produced steel, other end-user demand improves, and incremental steel demand stimulated by recent government legislation and manufacturing on-shoring is realized.
• Steel and light vehicles remain at the top of the Trump administration's trade agenda, and we are at the intersection of both of these industries.
• 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.
• 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.
• Our operational 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.
• We expect the supply of busheling scrap to further tighten due to decreasing prime scrap generation from original equipment manufacturers as they improve their production efficiency, the growth of EAF capacity in the U.S., reduced metallics imports due to recently announced tariffs on all Brazilian imports, potential for higher prices as a result of tariffs, and a push for expanded scrap use globally.
• Increased prices for busheling scrap in the U.S. bolster our competitive advantage, as we source the majority of our iron feedstock from our stable-cost mining and pelletizing operations.
• Our strong and productive labor relationships are key to our long-term success and allow us to work together in achieving our goals.
• We are confident in our ability to achieve identified synergies related to the Stelco Acquisition.
• We remain committed to operating our business in a more sustainable manner.
• 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 industry is experiencing volatile but improving market conditions, with higher HRC pricing and lower import levels providing some support. However, demand is still impacted by weak light vehicle production and inconsistent customer buying behavior. The company highlights the critical role of steel and automotive tariffs, particularly from the Trump administration, in protecting the U.S. economy and domestic steel market from overproduction and unfair trade practices. The tightening supply and increasing prices of busheling scrap are noted as a competitive advantage for integrated producers like Cleveland-Cliffs, which rely less on external scrap. The company's focus on automotive-grade steel and electrical steels (GOES/NOES) positions it to benefit from anticipated growth in domestic vehicle production and modernization of the electrical grid, especially with the widespread adoption of AI increasing electricity consumption.

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, demonstrating strong environmental performance relative to peers.
• As a fully integrated steel producer with a blast furnace footprint, the company's ability to internally source the majority of its iron feedstock provides a competitive advantage over competitors primarily operating EAF facilities that rely on imported pig iron, which is subject to volatile pricing and potential tariffs (e.g., on Brazilian imports).
• The company's fixed price contracts for 30-35% of its volumes mitigate pricing volatility through the cycle, differentiating it from other steel producers often viewed as highly subject to spot market prices.
• The company is a leading supplier of automotive-grade steel in the U.S., a segment that typically generates higher through-the-cycle margins compared to other steel end markets due to its demanding quality and service requirements.
• The company is the first and only producer of HBI in the Great Lakes region, providing a high-quality, low-cost, and low-carbon intensive product that enhances productivity in blast furnaces and serves as a premium scrap alternative for BOFs and EAFs, a unique competitive strength.

Legal Proceedings

• Mesabi Metallics Adversary Proceeding: A complaint filed by Mesabi Metallics Company LLC against Cleveland-Cliffs Inc. and its subsidiary, alleging tortious interference, antitrust violations, and other claims. A ruling in favor of Cliffs on real estate transactions was issued in July 2018. The case was withdrawn from Bankruptcy Court and set for trial in the United States District Court for the District of Delaware in May 2027. The company continues to vigorously defend against the claims.
• Environmental Matters: The company is subject to various environmental regulations and may incur costs for investigation and remediation. While potential remediation expenditures are estimated for probable sites, the ultimate costs may be higher than currently recorded liabilities. No material adverse effect on financial condition, results of operations, or cash flows is currently expected from these proceedings.

Related Party Transactions

• The company consolidates SunCoke Middletown as a Variable Interest Entity (VIE) despite having no ownership interest, due to long-term supply agreements for coke and electrical power. SunCoke Middletown's financial results are included in the company's consolidated statements.

Stakeholder Impact

• Shareholders: Experienced significant net losses and negative free cash flow, leading to a decrease in total equity. No share repurchases occurred in the current period, impacting capital return.
• Employees: The company implemented a 'Buy American' incentive program to support employees purchasing American-built vehicles. However, operational adjustments led to severance costs and indefinite idling of several facilities, impacting employee-related costs and potentially employment.
• Customers: The company aims to diversify its customer base through the Stelco Acquisition and continues to be a leading supplier of automotive-grade steel, focusing on high-quality products and customer service.
• Suppliers: The company offers voluntary supply chain finance programs to suppliers. Operational changes and potential tariffs on raw materials could impact supplier relationships and costs.
• Creditors: Long-term debt increased due to new senior notes issuance, but the company maintains healthy liquidity and significant secured debt capacity, indicating ability to service debt.

Next Steps

• Assess the impact of the 'One Big Beautiful Bill Act' on consolidated financial statements.
• Shift sales and product mix to higher-margin business following the conclusion of the semi-finished steel slabs contract in December 2025.
• Continue to work with automotive partners to ensure the availability of domestically produced, automotive-grade steel.
• Optimize the fully-integrated steelmaking footprint to realize inherent cost advantages and enhance efficiency.
• Capture identified synergies from the Stelco Acquisition, including asset and capital expenditure optimization, procurement savings, and SG&A reductions.
• Continue efforts to enhance environmental sustainability and achieve new GHG emissions reduction targets.
• Utilize healthy free cash flow (expected in coming years) to deleverage the balance sheet.
• Vigorously defend against all remaining claims in the Mesabi Metallics Adversary Proceeding, with trial set for May 2027.

Key Dates

Recommendation

The company's financial performance for the quarter and year-to-date is significantly worse than the prior year, marked by substantial net losses, a sharp decline in Adjusted EBITDA, and negative free cash flow. While the company highlights strategic initiatives and positive market trends like tariffs and HRC price increases, these have not translated into improved profitability or cash generation in the reported period. The increase in long-term debt and the costs associated with idling facilities further strain the balance sheet. Given the significant deterioration in key financial metrics and the ongoing uncertainties in the steel and automotive markets, a seasoned investor would likely consider a 'sell' recommendation to mitigate further downside risk until there is clear evidence of a sustained turnaround in profitability and cash flow.

Keywords

Steel, Automotive Steel, Iron Ore, Steelmaking, Tariffs, SEC Filing, Quarterly Report, Financial Results, Manufacturing, North America, Stelco Acquisition, ESG, GHG Emissions, Supply Chain, Capital Expenditures, Debt, Liquidity