Cleveland-Cliffs outlines multiyear OEM contracts and $425M asset sales while advancing rare earths initiative
Oct. 20, 2025 5:06 PM ET
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Earnings Call Insights: Cleveland-Cliffs Inc. (CLF) Q3 2025
Management View- CEO Lourenco Goncalves stated that "our third quarter results were a clear indication that a significant rebound in domestic steel demand has started, and the automotive sector is leading the way." He emphasized that Q3 marked "our best auto steel shipment quarter since the first quarter of 2024" and announced the signing of "2 or 3-year agreements with all major automotive OEMs, covering higher sales volumes and favorable pricing through 2027 or 2028." Goncalves highlighted that these contracts are "not small renewals" and represent strategic commitments by auto OEMs to domestic steel sourcing.
- Goncalves described Cleveland-Cliffs as "the natural partner for the car manufacturers expanding production in the United States," noting readiness for full capacity utilization in 2026 with nine automotive-grade galvanized steel plants operational.
- He mentioned a memorandum of understanding (MOU) with a major global steelmaker, expecting a formal announcement in the coming months, and indicated that advancing this MOU is now the company's "top priority."
- Goncalves reported that the company is "under contract or agreements in principle for 8 of these sites with a combined total value of $425 million," with proceeds to be used for debt reduction. The larger operational asset sales process is being deprioritized in favor of the MOU negotiation.
- CEO Goncalves discussed challenges with the Canadian market, especially for Stelco, citing a "completely unwilling" Canadian government to act on steel dumping, resulting in "important steel penetration into the Canadian market stands at a ridiculous and absurd 65%."
- He announced a "5-year $400 million fixed-price contract by the Defense Logistics Agency of the U.S. Department of War," further reinforcing Cliffs' strategic role in supplying grain-oriented electrical steel (GOES).
- The company is advancing rare earths exploration in Minnesota and Michigan, with Goncalves noting, "Comprehensive reviews of our ore bodies and tailings basins have identified 2 sites... where geological surveys show evidence of rare earth mineralization."
- CFO Celso Goncalves stated, "Our third quarter results were driven by steady operational execution and much better-than-expected pricing, supported by automotive strength." He reported "adjusted EBITDA in the quarter improved to $143 million, a 52% increase over the prior quarter, driven by margin expansion from higher realized prices and improved mix."
- CFO Goncalves highlighted cost savings from footprint optimization and reported that "projected annual savings of $300 million from these maneuvers remain on track." He announced reduction in the CapEx budget for 2025 to $525 million and SG&A expectation down to $550 million for the year.
Outlook- CFO Celso Goncalves stated Q3 cost reductions are expected to continue, with "unit costs... still expected to be down $50 a ton" for 2025. He provided guidance that Q4 shipments should be "similar as Q3, around 4 million tons," with seasonal effects expected.
- Management expects automotive shipment momentum to continue, with new contracts contributing more substantially as 2026 begins. The expiration of the slab contract on December 9 is anticipated to improve internal production economics.
- The company remains focused on advancing the MOU with the global steelmaker, deprioritizing other asset sales processes in the meantime.
Financial Results- CFO Celso Goncalves reported adjusted EBITDA of $143 million for the quarter, a 52% increase over the prior quarter.
- Steel shipment volumes were 4 million tons, a reduction from the prior quarter, but the mix shifted favorably toward automotive, raising the average selling price to $1,032 per net ton, up $17 per net ton over the prior quarter.
- Cost performance was attributed to completed footprint optimization. CapEx for 2025 is now projected at $525 million, down from $700 million, and SG&A is expected at $550 million, reduced from $625 million.
- The company is under contract or agreement for $425 million in asset sales, with proceeds designated for debt reduction.
Q&A- Nick Giles, B. Riley Securities: Asked about the rare earths initiative timeline and vertical integration. CEO Goncalves explained, "We have the opportunity to develop the mining, assuming that all these original studies will play out as we expect... There are several ways to go with this thing."
- Giles followed up on resources and timeline. CEO Goncalves said, "We identified two sites that have the most promising. We are working with the geologists to assess whether these deposits could become commercially viable."
- Lawson Winder, BofA Securities: Inquired about the deprioritization of the asset sale process. CEO Goncalves clarified that the process is ongoing but the MOU is now the top priority and confirmed the agreement to sell Florida assets to SA Recycling.
- Winder asked about economics; CEO Goncalves declined to provide numbers but said the transaction has no impact on EBITDA.
- Philip Gibbs, KeyBanc: Questioned the timing of new auto contracts and cost reduction momentum. CEO Goncalves confirmed some contracts begin in Q4 and auto volumes should pick up in 2026. CFO Goncalves stated costs are still expected to be down $50 a ton.
- Carlos de Alba, Morgan Stanley: Asked about volume growth and pricing in new auto agreements. CEO Goncalves stated contracts will "generate a lot more margin for us, including margin per ton" but declined further detail, emphasizing Cliffs' substantial capacity.
- Michael Harris, Goldman Sachs: Asked about the electrical steel contract and cost reduction sources. CEO Goncalves described the contract as a "multiyear onetime opportunity," and CFO Goncalves explained cost reductions resulted from optimizing the footprint post-acquisitions.
Sentiment Analysis- Analysts focused on execution of strategic initiatives, rare earths expansion, cost reductions, and contract visibility, with a tone that was neutral to slightly positive and a focus on clarity around guidance and asset sales.
- Management presented a confident outlook, frequently emphasizing operational readiness, contract wins, and cost discipline, but remained measured and at times deflected specifics on sensitive topics, such as rare earths economics and precise asset sale values. CEO Goncalves used phrases like "we are very excited" and "we will see how we go from there."
- Compared to the previous quarter, both analysts and management maintained a tone of cautious optimism. Management's tone was consistent, with a shift towards highlighting new strategic partnerships and expanded auto contracts.
Quarter-over-Quarter Comparison- Q3 featured the formalization of multiyear automotive OEM contracts and a significant MOU with a global steelmaker, compared to Q2's focus on cost optimization and initial asset sale exploration.
- Q3 showed a completed first phase of cost savings with $300 million in annualized savings on track, and a more pronounced shift toward higher-margin automotive volumes, while Q2 emphasized shipment volume growth and initial cost reduction targets.
- Analysts shifted from focusing on cost trajectory and asset values to exploring growth via rare earths, new contracts, and strategic partnerships.
- The tone remained confident, but with greater emphasis on future growth opportunities and capitalizing on favorable trade policy.
Risks and Concerns- Management noted continued weakness in the Canadian market due to high steel import penetration and lack of government action.
- The company continues to mitigate risks through cost discipline, operational improvements, and asset sales to reduce debt.
- Seasonality, ongoing macroeconomic headwinds in construction and manufacturing, and the pace of automotive sector recovery remain uncertainties.
Final Takeaway
Cleveland-Cliffs emphasized its readiness to capitalize on a strong rebound in U.S. automotive steel demand, underpinned by new multiyear contracts with major OEMs and operational capacity already in place. The company highlighted ongoing cost discipline, a robust pipeline of asset sales totaling $425 million, and a transformational MOU with a global steelmaker, while outlining plans for further rare earths development. Management remains confident in the foundational improvements achieved and the opportunities ahead as automotive and trade policy tailwinds drive future growth.
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