Executive Summary / Key Takeaways

• Strategic Transformation and Domestic Focus: Cleveland-Cliffs has fundamentally reshaped its business into a vertically integrated North American steel powerhouse, strategically aligned with the resurgence of U.S. manufacturing and a "Buy American" policy environment.
• Automotive Rebound and Contract Wins: The company is experiencing a significant rebound in automotive steel demand, securing multi-year contracts with major OEMs that underscore a strategic shift towards domestic sourcing and higher-margin business.
• Aggressive Cost Optimization and Catalysts: Proactive footprint optimization initiatives and the impending expiration of an onerous slab contract are set to deliver substantial annual savings and a significant boost to annualized EBITDA starting in 2026.
• Technological Edge and Critical Materials: Cliffs leverages its advanced steelmaking technologies, including HBI production and specialized electrical steels, and is exploring rare earth element extraction, reinforcing its competitive moat and national security relevance.
• Strengthening Financial Position: Despite recent challenges, the company is focused on debt reduction through robust free cash flow generation and strategic asset sales, aiming to improve its leverage metrics and maintain financial flexibility.

The Resurgence of American Industrial Might

Cleveland-Cliffs Inc. stands as a testament to American industrial resilience, having transformed from a venerable mining company founded in 1847 into a leading, vertically integrated North America-based steel producer. This strategic pivot, solidified by major acquisitions of AK Steel and ArcelorMittal USA in 2020, positioned Cliffs at the nexus of iron ore mining, direct reduced iron production, primary steelmaking, and advanced downstream finishing. The company’s core focus on value-added sheet products, particularly for the automotive industry, underpins its strategy, employing approximately 30,000 people across the U.S. and Canada, with a strong unionized workforce.

The current market landscape is profoundly shaped by a renewed emphasis on domestic manufacturing and robust trade protections. Recently implemented Section 232 tariffs on steel, autos, and derivative products are viewed by management as non-negotiable and critical to fostering a level playing field against foreign overproduction and unfair trade practices. This policy environment is compelling manufacturing to return to the United States, creating a significant tailwind for domestic steel demand. For instance, the price for domestic Hot-Rolled Coil (HRC) averaged $843 per net ton in Q3 2025, a 24% increase over Q3 2024, supported by declining finished steel imports. North American light vehicle production also rose to approximately 3.90 million units in Q3 2025, up from 3.80 million units in Q3 2024, signaling a healthy consumer demand environment.

Technological Leadership and Strategic Differentiation

Cleveland-Cliffs' competitive advantage is deeply rooted in its technological differentiation and vertical integration. The company's ownership of iron ore mines in Minnesota and Michigan, coupled with its Hot Briquetted Iron (HBI) facility in Toledo, Ohio, provides a stable, low-cost, and low-carbon feedstock for its blast furnaces and Electric Arc Furnaces (EAFs). This HBI production, a first in the Great Lakes region, enhances productivity and reduces reliance on external, often volatile, scrap and metallics markets. This integrated supply chain offers unparalleled cost stability, quality consistency, and supply security, a critical moat against competitors who often rely on imported pig iron or other raw materials.

Beyond primary steelmaking, Cliffs demonstrates advanced capabilities in specialized products. The $150 million bright anneal line commissioned at its Coshocton Works plant in Ohio in Q2 2025 exemplifies this. This state-of-the-art line produces premium stainless steel for high-end automotive and critical appliance applications, utilizing a 100% hydrogen atmosphere for superior quality and productivity. Furthermore, Cliffs is the sole U.S. producer of Grain-Oriented Electrical Steel (GOES) and Non-Oriented Electrical Steel (NOES), materials vital for modernizing the electrical grid and supporting electric vehicle infrastructure. The company secured a five-year, $400 million fixed-price contract with the U.S. Department of War for 53,000 net tons of GOES, highlighting its strategic importance to national security. These technological differentiators translate directly into higher-value product offerings, stronger customer relationships, and through-cycle margin resilience.

Competitive Landscape and Strategic Positioning

In the North American steel market, Cleveland-Cliffs faces a diverse set of competitors, including integrated producers like U.S. Steel Corporation (X) and global giants such as ArcelorMittal (MT), as well as mini-mill operators like Nucor Corporation (NUE) and Steel Dynamics Inc. (STLD). Cliffs' vertical integration from iron ore mining to finished steel products provides a distinct advantage in raw material cost stability and supply chain resilience, particularly against EAF mini-mills that are more exposed to volatile scrap and imported pig iron prices. Management notes that increased busheling scrap prices, which averaged $461 per long ton in Q3 2025 (up 13% year-over-year), bolster Cliffs' competitive position.

The company's strategic focus on the automotive sector is a key differentiator. Cliffs has nine automotive-grade galvanized steel plants with significant underutilized capacity, positioning it as the natural partner for OEMs reshoring production to the U.S. Recent multi-year agreements with major automotive OEMs, covering higher sales volumes and favorable pricing through 2027 or 2028, demonstrate a strategic commitment to domestic steel sourcing by these customers, who seek stability and resilient supply chains. This contrasts with past trends where some automakers pursued aluminum, a shift that proved fragile, as evidenced by a major fire at a large automotive aluminum mill in Q3 2025, prompting some OEMs to reconsider steel. Cliffs expects aluminum's automotive participation to shrink, with Cliffs being the primary beneficiary.

While the Stelco acquisition in November 2024 expanded Cliffs' Canadian presence, the Canadian market remains challenging due to high import penetration (65%) and the Canadian government's perceived inaction against steel dumping. Cliffs aims for Stelco to thrive by serving the Canadian market exclusively, leveraging its favorable cost structure. The company's commitment to domestic supply chains is further underscored by its "Buy American" incentive program for employees purchasing U.S.-built vehicles with Cliffs steel content.

Financial Performance and Liquidity

Cleveland-Cliffs experienced a challenging period in late 2024 and early 2025, with Q4 2024 reporting an $81 million Adjusted EBITDA loss and Q1 2025 an Adjusted EBITDA loss of $174 million. These results were attributed to the lagged impact of low steel prices and underperforming non-core assets. However, Q3 2025 marked a significant turning point, with Adjusted EBITDA improving to $143 million, a 52% increase over Q2 2025. This improvement was driven by margin expansion from higher realized prices and an improved product mix, with automotive shipments increasing from 26% to 30% share and coated volumes from 27% to 29% share. Steel shipment volumes in Q3 2025 were 4.0 million net tons, contributing to an average selling price of $1,032 per net ton, up $17 from Q2 2025.

For the nine months ended September 30, 2025, revenues decreased by $562 million (4%) to $14,297 million, primarily due to lower realized revenue rates and reduced tons sold, partially offset by the Stelco acquisition. Adjusted EBITDA for the nine-month period decreased significantly to $58 million from $854 million in the prior-year period, reflecting the impact of decreased gross margins. The company's gross margin, however, increased by $60 million in Q3 2025 compared to the prior year, benefiting from product mix, lower maintenance, and a favorable arbitration decision on iron ore mining royalties. Interest expense, net, increased by $207 million for the nine months ended September 30, 2025, to $442 million, due to higher outstanding borrowings.

As of September 30, 2025, Cleveland-Cliffs maintained a healthy liquidity position of $3.10 billion, comprising cash and cash equivalents of $66 million and available borrowing capacity under its $4.75 billion ABL Facility. The company has been proactive in managing its debt, issuing $850 million of 7.50% Senior Notes due 2031 in February 2025 and an aggregate of $1.125 billion of 7.62% Senior Notes due 2034 in September and October 2025. These proceeds were used to repay ABL borrowings and redeem $685 million of senior notes maturing in 2027, effectively extending its debt maturity runway. Management's capital allocation priority is clear: 100% of future free cash flow will be directed towards debt reduction to reach its target net debt-to-EBITDA ratio of 2.5 times.

Outlook, Guidance, and Strategic Initiatives

Management's outlook for the second half of 2025 and into 2026 is significantly positive, driven by internal "self-help initiatives" and favorable market conditions. The company expects domestic steel demand to grow, supported by tariffs, improving end-user demand, declining interest rates, and government-stimulated manufacturing on-shoring.

Key guidance and strategic initiatives include:

• Cost Reductions: Footprint optimization initiatives, including idling the Minorca and Hibbing Taconite mines, the Dearborn Hot End, and permanently closing facilities in Steelton, Conshohocken, and Riverdale, are expected to generate over $300 million in annual savings. The full impact of these savings is anticipated in the second half of 2025. The full-year 2025 unit cost reduction target is $50 per ton relative to 2024.
• Slab Contract Expiration: The "onerous slab contract" with ArcelorMittal/Nippon Steel Calvert, which has weighed on margins, will expire on December 9, 2025. This is expected to provide an annualized EBITDA benefit of approximately $500 million starting in 2026.
• Stelco Synergies: The Stelco acquisition is on track to realize $120 million in synergies by year-end 2025, primarily from asset and capital expenditure optimization, procurement savings, and reduced overhead.
• Capital Expenditures and SG&A: The 2025 CapEx budget has been reduced to $525 million from an initial $700 million, reflecting reduced spend at Stelco and changes to the Middletown DOE project. Full-year SG&A expectation is lowered to $550 million from $625 million. The next blast furnace reline is scheduled for 2027, with no reline-related CapEx in 2026.
• Strategic Opportunities: Cliffs is exploring the potential for rare earth element extraction at two sites in Minnesota and Michigan, aligning with national critical material independence goals. The company has also entered a memorandum of understanding with a major global steel producer seeking to leverage Cliffs' U.S. footprint, with a formal announcement expected in the coming months. Furthermore, Cliffs is making progress on selling non-core properties, with eight sites under contract or agreement in principle totaling $425 million, with proceeds earmarked for debt reduction.

Risks and Challenges

Despite the optimistic outlook, Cleveland-Cliffs faces inherent risks. The cyclicality of the steel industry exposes the company to volatility in steel prices, raw material costs (e.g., natural gas, electricity, scrap), and foreign currency exchange rates, particularly with its Canadian operations. While tariffs are currently beneficial, changes in trade policy or enforcement could impact market dynamics. The economic viability of rare earth extraction is still subject to technical and economic studies. Furthermore, the Canadian market's continued struggle with steel dumping poses a challenge for Stelco's performance.

Conclusion

Cleveland-Cliffs is undergoing a profound transformation, strategically aligning its integrated steelmaking capabilities with a resurgent American manufacturing base. The company's robust technological differentiators, particularly in HBI production and specialized electrical steels, coupled with its vertical integration, provide a formidable competitive moat. The strong rebound in the automotive sector, driven by new OEM contracts and favorable trade policies, is a powerful catalyst for future growth. With aggressive cost optimization, the expiration of a burdensome slab contract, and a clear focus on debt reduction, Cliffs is poised for a significant improvement in profitability and cash flow generation in 2026 and beyond. The exploration of rare earth elements and strategic partnerships further underscore its long-term vision to be a foundational pillar of American industrial independence. Investors should recognize Cleveland-Cliffs as a compelling opportunity, positioned to capitalize on a new era of domestic industrial strength.