Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cleveland-Cliffs Inc (CLF, Financial) successfully closed the acquisition of Stelco, which is expected to enhance their EBITDA margin and provide cost synergies.
- The company achieved a significant cost reduction of $40 per ton in Q3, demonstrating strong operational efficiency.
- Cleveland-Cliffs Inc (CLF) has secured favorable coal supply contracts, leading to a $70 million cost improvement year over year.
- The company has received Phase one funding approvals from the Department of Energy for efficiency projects at Middletown and Butler.
- Cleveland-Cliffs Inc (CLF) maintains a strong position in the automotive industry, with expectations of a rebound in automotive demand in 2025.
Negative Points
- Q3 results were impacted by weaker steel demand and pricing, leading to a decrease in shipments and average selling prices.
- The company temporarily idled one of its blast furnaces in Cleveland due to ongoing demand weakness, affecting production capacity.
- Cleveland-Cliffs Inc (CLF) faced challenges with lower automotive build rates, the lowest since the semiconductor shortage, impacting shipments and margins.
- The company anticipates slightly lower prices for automotive contracts in 2025 compared to 2024.
- High interest rates are negatively affecting consumer demand for automotive and housing markets, contributing to weak market conditions.
Q & A Highlights
Q: Can you speak to Q4 volume, price, and cost expectations following the Stelco acquisition?
A: Lourenco Goncalves, CEO, mentioned that they anticipate a strong Q1 with volumes returning to normal by the first half of next year. The automotive business is expected to improve as some business lost to lower prices returns. Celso Goncalves, CFO, added that Q4 average selling prices should be similar to Q3, with shipments slightly lower on a standalone basis but offset by Stelco's contribution.
Q: Could you explain the significant reduction in CapEx guidance for 2025 and the expected EBITDA contributions from strategic projects?
A: Lourenco Goncalves explained that the reduction in CapEx is due to less need for maintenance after significant investments in recent years. The company is cautious about spending on upgrades for electric vehicle transitions due to slower-than-expected adoption. Celso Goncalves added that the 2025 CapEx is expected to be around $675 million, including Stelco, with strategic investments in Middletown and Butler.
Q: How do you see costs evolving into Q4, given the $40 per ton reduction achieved in Q3?
A: Celso Goncalves noted that while they achieved significant cost reductions in Q3, similar reductions are not expected in Q4 due to the Cleveland six idle. However, they will continue to focus on cost discipline, and Stelco's integration is expected to bring cost benefits.
Q: What are the expectations for auto contract pricing in 2025 compared to 2024?
A: Lourenco Goncalves stated that while some auto contracts for 2025 have slightly lower prices, the tonnage is preserved. The company is optimistic about the automotive sector's recovery and expects to regain business lost to lower-priced competitors.
Q: Can you discuss the impact of high interest rates on demand and the potential for recovery?
A: Lourenco Goncalves highlighted that high interest rates are significantly impacting consumer decisions, particularly in automotive and housing markets. He emphasized the need for interest rates to come down to stimulate demand and expects a recovery once this happens.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
