Cleveland-Cliffs (CLF) Q2 2025 Earnings Transcript

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DATE

• Monday, July 21, 2025, at 8:30 a.m. EDT

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — Lourenco Goncalves
• Executive Vice President, Chief Financial Officer — Celso Goncalves

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RISKS

• Celso Goncalves stated, "In Q2 2025, we had a free cash outflow of $67 million."
• Ongoing exposure to higher imported steel penetration in Canada is restricting pricing at Stelco, as explicitly discussed by management.
• Lourenco Goncalves indicated that underutilized automotive steel capacity persists: "We still have underutilized automotive steel capacity."

TAKEAWAYS

• Adjusted EBITDA Improvement: Adjusted EBITDA increased by $271 million quarter-over-quarter in Q2 2025, driven by higher shipment volumes, operational efficiency, and reduced production costs.
• Shipments: Total volume reached 4.3 million tons, a 150,000-ton sequential increase in Q2 2025.
• Unit Cost Trends: Unit costs declined by $15 per ton in Q2 2025, outpacing initial guidance that had anticipated an increase.
• Quarterly Price Realization: Average selling price rose to $1,015 per ton, up $35 quarter-over-quarter in Q2 2025, primarily due to higher index pricing.
• Cash Flow: Q2 2025 free cash flow was a $67 million outflow, primarily reflecting working capital released through inventory reductions.
• Footprint Optimization: Cost-cutting and footprint optimization are on track, as evidenced by SG&A and capital expenditure reductions totaling $50 million for full year 2025.
• Automotive Trends: Management explicitly cited growing automotive steel shipments, with OEMs shifting production to the United States, resulting in increased volumes in Q2 2025 and an expected visible acceleration in the coming periods.
• Guidance on Costs: Full-year 2025 targets confirm a $50 per ton year-over-year reduction in steel unit costs compared to 2024.
• Q3 Outlook: Executives expect costs in Q3 2025 to decrease by "another, call it, $20 per ton from Q2 to Q3," with volumes remaining flat at 4.3 million tons.
• EBITDA Drivers: Upon expiry of the Arcelor slab agreement in December 2025, the company anticipates an additional $125 million per quarter EBITDA benefit, assuming current market conditions persist.
• Liquidity Position: Quarter-end liquidity totaled $2.7 billion in Q2 2025, with no near-term maturities and a manageable net debt trajectory.
• Stelco Synergies: Internal coke sourced from Stelco has delivered the largest single cost synergy to date, enabling the expiry of a 550,000-ton external coke contract in June 2025 and another by year-end 2025.
• Asset Sale Process: JPMorgan has been engaged to advise on the sale of certain non-core operating assets, representing billions of dollars of value, with all proceeds earmarked for debt reduction.
• Strategic Stainless Steel Investment: The quarter saw completion and commissioning of a $150 million bright anneal line for higher-value stainless products at Coshocton Works in Ohio.
• Vertical Integration: Cleveland-Cliffs Inc. highlighted its full independence from imported pig iron, using domestic iron ore and resources, signaling a competitive distinction versus EAF-based peers.

SUMMARY

Cleveland-Cliffs (NYSE:CLF) Management stated that operational efficiencies, higher realized pricing, and improved shipment volumes produced meaningful financial progress driven by footprint optimization and cost reduction. The company emphasized proactive actions in supply chain management and debt reduction, including the use of internal coke supplies and non-core asset monetization. Market developments such as Section 232 tariffs and planned tariffs on Brazilian pig iron, alongside the company’s vertical integration, may improve Cleveland-Cliffs Inc.'s domestic positioning relative to import-reliant competitors. Further EBITDA (non-GAAP) growth is expected following the expiry of the Arcelor slab agreement in December 2025, supported by stable liquidity and near-term leverage reduction initiatives.

• Lourenco Goncalves said, "the second half of 2025 is shaping up to be much better than the first half."
• Guidance for capital expenditures tied to the Middletown project was updated, confirming no reline CAPEX until 2027, and DOE collaboration on future facility enhancements.
• Discussions referenced ongoing interest from potential acquirers of non-core assets and the existence of inbound foreign investment queries for Cleveland-Cliffs Inc. as a whole, given its position in the automotive and electrical steel markets.
• Section 232 tariffs are credited with driving multi-year lows in both steel and light vehicle imports as of April 2025, directly enhancing Cleveland-Cliffs Inc.'s market environment and competitive stance.

INDUSTRY GLOSSARY

• Section 232 Tariffs: U.S. legal authority imposing tariffs on imported steel and other products for national security reasons; directly affects domestic versus foreign steel cost competitiveness.
• EAF (Electric Arc Furnace): A steelmaking process relying on electrical energy and largely scrap input, distinct from integrated blast furnace/BOF production.
• Bright Annealed Stainless: High-quality stainless steel finished in a controlled atmosphere to produce a reflective, premium surface, commonly used in automotive and appliance components.
• Stelco: Canadian integrated steel manufacturer acquired by Cleveland-Cliffs Inc. in November 2024, significant for internal coke supply synergies and Canadian market exposure.
• CRU: An industry benchmark index used for steel price contracts, referenced in Cleveland-Cliffs Inc.'s product pricing structure.

Full Conference Call Transcript

Lourenco Goncalves: Thank you, Rob. And good morning, everyone. Our adjusted EBITDA in Q2 showed an improvement of $271 million from the prior quarter. We achieved higher shipment volumes targets and as a result, we improved our operational efficiency and lowered our production costs. Our recently announced footprint optimization initiatives are underway as planned and you will see their impact in the second half of this year. We are laser-focused on cost-cutting and steel sales. And that is the way we will continue to execute going forward. Section 232 is still tariffs. Implemented on March 12 at a level of 25% and increased to 50% on June 4 have played a significant role in supporting the domestic steel industry.

Foreigners competing unfairly will do whatever they can to get into our great American domestic market. They pay their workers a lot less than we pay our American workers. They receive direct subsidies from their governments. And they do not have to comply with the stringent environmental standards and laws we have in place in the United States. So far, there is no indication that the Section 232 tariffs will be used as a bargaining chip by the Trump administration as leverage in trade deals with other countries. We appreciate that and fully expect that the administration will keep in place and enforce the Section 232 tariffs.

If the United States really wants to continue to have a strong domestic steel industry, proper enforcement of the Section 232 tariffs is absolutely necessary. With no exceptions or exemptions allowed. The import data that has been published thus far makes it very clear that the 232 tariffs are having a positive impact not just on steel, but also on the automotive sector. Both flat-rolled steel imports and light vehicle imports reached multi-year lows in April. The Trump administration has prioritized two sectors: steel and automotive. That are critical to the strengths of our economy, to the resilience of our supply chains, and to United States national security.

We, Cleveland-Cliffs Inc., sit right there at the intersection of both sectors: steel and automotive. The place where imported steel remains a huge problem is Canada. We understand why the US has a 50% tariff on imported steel from Canada. And that is fine. We are keeping all this steel in Canada, and we are doing that by design. Since we acquired Stelco in November of last year, and not now as a result of the tariffs implemented in 2025. It is well known that the United States is a net importer of steel. What is not as well known is that Canada is also a net importer of steel.

So, just like the U.S. used to be prior to President Trump, Canada is still being taken advantage of by all foreign producers. Friends and foes. All dumping steel into the Canadian market. Friends and foes. The Canadian government's latest attempt to stop unfair trade is insufficient. It only covers 70% of steel imports into Canada. Because of the insistence on allowing free trade agreement countries, the so-called FTA friends, to continue to use Canada as their outlet for overproduction. Our message is very clear and easy to understand. If Prime Minister Carney and his cabinet want to have a steel industry in Canada, they should put in place significant trade protections.

Then they will have a strong domestic steel industry in Canada, able to support a vibrant domestic Canadian market. We are doing just that here in the United States, and it is working. Strategic protection leads to reinvestment, full employment, and long-term viability. Our Canadian employees need more action, real action, from Prime Minister Carney. Now, on the topic of automotive, the most relevant issue to be attacked and resolved is enhancing the consumer's ability to finance the purchase of a vehicle. Despite no signs of tariffs reigniting inflation, the Federal Reserve continues to keep interest rates unnecessarily high.

After making home buying unattractive with very expensive mortgages, the Fed's inaction on cutting interest rates is now an impediment to car buyers. Once Chairman Jerome Powell is gone, and that is not a matter of when, not if, and as soon as interest rates come down by 50 or 75 basis points, the automotive sector will take off again. Demand is there. But this Fed chairman will not act. So we need a new Fed chairman appointed as soon as possible. At Cleveland-Cliffs Inc., even with the growth we have been seeing in our tonnage delivered to the sector, we still have underutilized automotive steel capacity.

With the OEMs continuing to bring back production to the United States, and with consumer-friendly interest rates, the automotive sector will thrive. Cleveland-Cliffs Inc. is ready for that. We can ramp up quickly and our capabilities, quality, and customer service are well known by all OEMs. Cleveland-Cliffs Inc. is in a unique position to support the upcoming resurgence in American vehicle production. Right now, not in three or five years. Other relevant news in trade enforcement is the very important 50% tariff that will go into place on Brazilian pig iron starting August 1. Cleveland-Cliffs Inc. does not rely on imported pig iron at all. We have our own hot-briquetted-iron facility in Toledo, Ohio.

But several of our EAF competitors do rely on imported pig iron. We are vertically integrated and we use American iron ore, American coal, and American natural gas as feedstock. All produced right here in the United States of America. Employing American workers. There is no justification to exempt imported pig iron from tariffs as it is just to create an artificial cost advantage to benefit some players to the detriment of others. That would be equivalent to allowing imported steel into our market just because domestic steel is cheaper than the mass-produced steel. Or allowing for imported cars made in China to be dumped into the United States just because Chinese cars are cheaper.

Cleveland-Cliffs Inc.'s vertically integrated business model differentiates us from the rest of the industry by being completely independent from imported feedstock. The EAF mini-mills, rightfully so, do not support any exemptions for imported steel. As a matter of coherence, they should not ask for exemptions for imported pig iron from Brazil or from any other country. In Q2, we also had some exciting news for our stainless steel business. Our smaller but consistently profitable stainless business is one of our best-kept secrets. During the quarter, we completed and commissioned a $150 million investment in our bright anneal line at our Coshocton Works plant in Ohio.

Bright annealed stainless is a premium stainless steel product for high-end automotive and critical appliances applications. If you think about the bright trim surrounding a car window, or the inner drum of a washer and dryer, that is what we make there. With this investment, which should generate a quick return on invested capital, we are dramatically improving the quality and productivity of this critical product that our customers rely upon Cleveland-Cliffs for. Finally, let me briefly touch on the shifting competitive landscape in the domestic steel market. The United States remains the most desirable market for steel. Nippon Steel's entry into our market investment promises highlight the strengths and appeal of the opportunities here.

Nippon's nearly $29 billion total investment proves something we have said all along. Fully integrated, mining, pelletizing, blast furnace, BOF production is necessary, particularly in a country like the United States that already has more than 70% of EAF-based steelmaking. If that was not the case, Nippon Steel would have just built a big number of new EAF mini-mills in the United States for a much lesser investment and would not have purchased a primarily integrated steelmaker. They see the value in blast furnaces just as we at Cleveland-Cliffs Inc. do. Through their recently acquired and now third-tier subsidiary, USU, Tokyo-based Nippon Steel is now an active participant within the American market.

This is a fact, and the fact creates a new level of optionality for other market participants, Cleveland-Cliffs Inc. included. Among several possible outcomes, foreign investment in Cleveland-Cliffs Inc. becomes an attractive opportunity for other foreign entities, particularly due to our unique position as a major supplier to the automotive sector and of electrical steels. With that, I will turn it over to Celso. Thank you.

Celso Goncalves: Q2 results were largely driven by better realized pricing, cost reductions, and record shipments. Volumes of 4.3 million tons represented a 150,000-ton increase from the prior quarter and allowed us to run our mills more efficiently. We had previously expected a slight unit cost increase quarter over quarter, but with the solid operating performance, we actually recorded a $15 per ton unit cost decrease. The average selling price of $1,015 per ton represented a $35 per ton increase from the prior quarter, driven primarily by higher index pricing and partially offset by lower slab and plate pricing. Stelco pricing was relatively flat.

After the Arcelor slab agreement expires in December, assuming today's pricing and demand environment, we should get another $125 million per quarter EBITDA boost. From a cash flow perspective, inventory reductions, particularly in raw materials like iron ore and coke, served as a meaningful source of cash in Q2. The acquisition of Stelco came with the benefit of being able to use excess coke production out of Hamilton in our U.S. mills. Stelco's pricing has been hampered by the excessive imported steel penetration in Canada, but the value of being able to use Hamilton coke has been the biggest driver of us reaching our cost synergy target.

As a result, we were able to let one of our third-party coke supply contracts expire on June 30, reducing our need to purchase coke externally. We have another coke contract expiring at the end of this year that we will no longer need either. Our ability to source more coke internally in and of itself has already made Stelco a valuable contributor for the combined company. And this will be further bolstered once the next coke contract expires. On top of that, based on current market dynamics, we expect even lower coal prices for 2026. Our balance sheet remains well-positioned as a result of Q2 and future working capital reductions.

We ended the quarter with $2.7 billion of liquidity and no near-term maturities. Net debt remains manageable and is soon to be on a downward trajectory. Our capital allocation priorities remain clear: use excess free cash flow to pay down debt and reach our leverage target. This is the history of my nine years at Cleveland-Cliffs Inc. We lever up to make necessary acquisitions, and we use the resulting cash flow to pay down debt quickly. Potential non-core asset sales could also accelerate debt reduction. We have now engaged JPMorgan as our advisor and launched sell-side processes to explore the potential sale of certain non-core operating assets.

These selected assets could represent billions of dollars of value, and we will only sell these assets if the sum of the parts valuation unlocks trapped value for Cleveland-Cliffs Inc. shareholders. In addition to these non-core operating assets, we are also receiving inbound interest in some of our recently idled facilities, which could also sell for cash. These sites, particularly Riverdale, Steelton, and Conshohocken, are all uniquely positioned geographically and have what data center developers are looking for: access to power and water, with the infrastructure already in place.

While these properties are idled, if opportunities do not arise that justify restarting, they have good value, and the amount of interest we have received in these properties so far is reflective of this. If we are successful in executing any sales, the cash proceeds will go directly to debt reduction. We also took actions during the quarter to lower both our SG&A run rate and capital expenditure budget. Our full-year 2025 expectations for these items were reduced by a combined $50 million. These were proactive, surgical reductions based on our newly tightened footprint. Our overhead structure is now leaner, and we are getting more out of every dollar we spend.

Our steel unit cost reduction target of $50 per ton remains firmly on track. This cost reduction pace, combined with healthy HRC pricing, is expected to support growing EBITDA generation in the coming quarters. Operational discipline, capital prudence, and free cash flow generation remain our top financial priorities. We are confident that these principles will continue to guide us to even better results in the coming quarters. With that, I will turn it over to Lourenco for his closing remarks.

Lourenco Goncalves: Thanks, Celso. We showed strong improvements in pricing, costs, and sales volumes in Q2. Going forward, the macro trends are aligning in our favor. With that, the second half of 2025 is shaping up to be much better than the first half. I will now turn it back to Rob for Q&A. Thank you.

Rob: At this time, we will be conducting a question-and-answer session. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, that is star one. Thank you. Our first question comes from the line of Nick Giles with B. Riley Securities. Please proceed with your questions.

Nick Giles: Thank you, operator. Good morning, Lourenco and Celso. Good to see the cost reductions come through in Q2. And so just was wondering how should we think about the cadence of cost reductions from here? How much of a sequential change could we ultimately see in Q3? And then was curious just wanted to get your thoughts on working capital considerations. Thank you very much.

Lourenco Goncalves: Yeah. Sure. Hey, Nick. Good morning.

Celso Goncalves: Happy to provide some general guidance for Q3. You know, for Q2, quarter over quarter, costs were down $15 a ton versus our expectations to be up $5 per ton. So we are happy to get the cost reduction going here in this quarter. Looking ahead to next quarter, we expect costs to be down another, call it, $20 per ton from Q2 to Q3, with even further reductions in cost in Q4. You know, Q3 costs were originally expected to be down more than $20 per ton, but some of the cost reductions were pulled forward into Q2. You know, a trade-off that we are happy to take.

The asset optimization initiatives that we have been talking about are in motion. And you can see that here already with the Q2 reductions. And we expect Q3 to also benefit from similar shipment levels as you know, as Q2. As it relates to the full year, we still expect costs to be down that $50 per ton in 2025 relative to 2024. And that is largely driven by the optimization of our footprint, reduction of fixed costs, reduced overhead, improved efficiencies, and a favorable cost mix as well.

Nick Giles: I appreciate that detail. My second question, I was wondering if you could remind us how we should start to think about CapEx expectations in 2027. I believe you do have a reline next year. So curious what kind of puts and takes we should have in mind, particularly some of the alterations at Middletown.

Lourenco Goncalves: Yeah. I will take that, Nick. Look. First of all, we do not have a reline next year. Our next reline is 2027. So there is no reline, no CapEx related to reline in 2026. As far as Middletown, the original project that we had there was basically replacing the blast furnace with two EAFs and a direct reduction line. And that line would be supported by hydrogen instead of natural gas. That was the endgame of that project in Middletown. The very first thing, it is clear by now that we will not have availability of hydrogen. So there is no point in pursuing something that we know for sure is not going to happen.

So it is not like that project was canceled by the DOE because it was not. We informed the DOE that we would not be pursuing that project. What generates a very good conversation with the current DOE's current team of the Department of Energy on revamping that project in a way that we preserve and enhance Middletown, using beautiful coal, beautiful coke, beautiful natural gas, our American iron ore from Minnesota, keeping the flagship Middletown works as our flagship facility, supplying automotive steels, and making our blast furnace operate fully under AI. So that is what we have in scope right now, and we are working with the DOE.

And I have been giving you as much detail as I can share at this very moment.

Nick Giles: Lourenco, thank you very much. Guys, continue best of luck.

Lourenco Goncalves: Appreciate it, Nick. Thanks.

Rob: Our next question comes from the line of Michael Harris with Goldman Sachs. Please proceed with your question.

Michael Harris: Yeah. Thank you, and good morning. Just a question around free cash flow. You have expectations that EBITDA, you know, continues to improve and you have the cost reduction, you know, well underway. So how should we think about free cash flow generation in the second half and maybe speak to expectations of, you know, that being positive and how sustainable that would be.

Celso Goncalves: Yeah. Sure. Hey, Mike. It is Celso here. Starting with Q2 free cash flow, we had a cash outflow of $67 million for the quarter. And that was largely driven by a meaningful release in working capital as we reduced inventory dramatically. You know, going forward, we should release even more working capital in the second half of this year. And we have shown our ability to generate robust free cash flow in the past. You know, if you look back, you know, in prior years, we have averaged over a billion dollars of free cash flow each year since our transformation. So the potential for free cash flow generation is meaningful. You know?

And if we see some tailwinds and sustained support from pricing, you know, that could accelerate pretty fast. And as we go into an environment where we are generating free cash flow, as we have been saying, you know, we are going to use all of that to pay down debt so you could see the deleveraging happen very quickly.

Lourenco Goncalves: Yeah. Let me just add, Lourenco here. Let me just add a couple of things on that, Mike. Remember that we shut down facilities that were eating into our ability to generate cash. Two in Pennsylvania and one in Illinois. That is behind us. So that is number one. Number two is that our model is predicated on an integrated model that is predicated on volume. So more than anything, we need consistent volumes. And the volumes are going away not only through the well-established practice of importing steel into the country, but with the newly developed practice of importing cars into the country. President Trump addressed both with Section 232 tariffs for steel and for cars.

So now the import of steel is no longer a fact as it was before. Now people would touch imports too with a lot of care. Because they could get burned. And second, car manufacturers are finally waking up to the fact that the easiest and fastest way to produce more cars in the United States is deploying back the installed capacity that is in place already. Just bring more shifts, hire more people. Produce more cars, start now. Do not just promise to build plants to produce cars in five, six years. That is not going to fly. Let us produce more cars now. We are seeing that as we speak.

And we are, Cleveland-Cliffs Inc., we are the only ones that have the installed capacity to promote that to happen. So it is happening already. And it will pick up steam as we go. So all these things will point out for a higher cash flow generation. And keep in mind, I did not mention anything regarding prices. We depend on volume. We depend on reducing costs. And our cost reduction in our integrated model is predicated on having base loads and volumes going through the footprint.

Michael Harris: Okay. Thanks. That is very, very good color. Appreciate that. And then just I guess, just as a follow-up, if demand picks back up, how much can this reduce the working capital unwind?

Celso Goncalves: Yeah. Sure. I mean, I think we have sort of talked about it already. We saw a meaningful inventory reduction here in Q2 and we expect that trend to continue here into Q3 and Q4.

Michael Harris: Okay, perfect. Thanks, guys.

Lourenco Goncalves: Thanks, Mike.

Rob: The next question is from the line of Lawson Winder with Bank of America. Please proceed with your questions.

Lawson Winder: Good morning, Lourenco and Celso. Thank you, operator. Celso, you did not touch on the average selling price expected for Q3 2025. Could you touch on how that is shaping up? And could you also touch on the volume expectation for Q3 2025? And also, I just wanted to say nice work on the cost reduction in Q2. Thank you.

Celso Goncalves: Yeah. Sure. Hey, Lawson. Yeah. Look, just to add some more color into Q3, Q3, you know, just generally, we expect to see continued EBITDA improvement from Q2 to Q3. I want to make that very clear. You know, shipments should be similar in Q3 as they were in Q2 at that 4.3 million ton level. As it relates to average selling price, I think we kind of give you guys the calculus to be able to get to that number. But just to sort of reiterate how the composition works, you know, if you want to take all the pieces and calculate your own ASP from Q2 to Q3, you can do the math.

It is about, you know, one-third fixed on a full-year price, with resets throughout the year. And then about 20% of our volumes are under CRU month lags. Call it 8% is the slab agreement on a two-month lag. 5% is CRU with a quarter lag. And about a third is the remainder kind of spot. And that includes the Stelco volumes as well. So I think with that, you should get enough to calculate Q3.

Lawson Winder: And then on the volumes, could you just give us an idea of how those are shaping up? And then further, I just wanted to ask about the DNA as well in Q3. So there was a step up in Q2. How is that expected to move on a Q over Q basis versus Q2 into Q3? Thanks.

Celso Goncalves: Yeah. Volumes in Q3 should be around the same level as Q2 at that 4.3 million ton level total. So call it flat from Q2 to Q3. D&A stepped up due to accelerated depreciation from the idled facilities. But it should return back to call it Q1 levels.

Lawson Winder: Fantastic. If I could just get your comments, just one final point on Canada. And there is some concern about the economy there slowing down. I would like to just hear your views on what you are seeing, particularly given that you are selling 100% of your volumes into Canada. I mean, are those concerns justified from what you are seeing from a steel industry point of view? Thanks. That is all for me.

Lourenco Goncalves: Lawson, look, let us clarify. We acquired Stelco and Stelco is the steel company of Canada. In November of 2024. So the name is still the company of Canada. So it was not supposed to be the steel company that disrupts the domestic market in the Great Lakes of the United States. So that was the main reason why I bought Stelco. Because I believe in Canada. The problem is that apparently the Canadians, particularly the Canadian politicians, they do not believe in Canada. They believe that Canada needs to be part of Europe. They are not. They believe that Canada depends on the United States. They do not.

So they need to wake up and stop being lazy in terms of thinking of their country as a satellite of Europe and the United States. Then they attract bad things said to them because they are all making. They need to grow a pair and understand that Canada is a very good country. With a lot of potential. With a lot of critical minerals, with a lot of things that can make it a powerhouse. The very first thing they need to tell foreigners is to get out of my market. Why they have to lock in the import levels of 2024 that basically killed the Canadian steel industry. Because they cannot sell in Canada.

At the very moment that section 232 hit, we, out of stock, we started selling as far as British Columbia. Because the ones in the Western Canada market realized that they could no longer rely on Asians to supply steel to them. But then they went back because and it is not like just the liberals. The conservatives are doing a horrible job too. So long story short, Canada can fix themselves. The important amount of steel into Canada is pretty equivalent to the size of the Canadian market. If they stop that, we are done. They are self-sufficient. And we are able to supply that market. We have proven that.

The difference between me and the rest is that I have very little patience to keep repeating the same thing time and time and time and time again. I have repeated enough the normal pinna. By the way, Cleveland-Cliffs Inc. through Stelco in Canada has a much bigger influence than Cleveland-Cliffs Inc. in the United States, and we have a lot of influence here. You should expect good things because I believe there are some politicians in Canada within the government that are waking up. And seeing light. And I have a lot of hope in my friends, cabinet members of the economy government. Let us see how Prime Minister Carney will react. He is not a central banker anymore.

I do not like central bankers. But now he is a prime minister. So time to step up and do what is necessary for Canada. That is what I expect there. I do not know if I answered your question properly, Lawson. Are you okay with that?

Lawson Winder: That was fantastic. Thank you so much for your color. Thanks, Celso. Thank you.

Lourenco Goncalves: Thank you. Thanks, Lawson.

Rob: The next question is from the line of Philip Gibbs with KeyBanc Capital Markets. Please proceed with your questions.

Philip Gibbs: Hey, good morning. Lourenco, can you talk a little bit about automotive volumes in the second quarter and how they developed relative to maybe Q1 or the late stages of 2024 where I know the volumes were under pressure?

Lourenco Goncalves: Actually, if you are, it is the opposite. The volumes are growing. We are seeing all the OEMs producing more cars, announcing more moves into the U.S., stopping importing steel from Asia to feed their plants in Mexico, while they are moving the plants from Mexico to the United States. But in the meantime, instead of buying steel from Asia, they are buying steel from the United States. We start to supply Mexico from the United States with the promise that we are going to supply them here as they grow the production of some models in the United States.

We are seeing several announcements of models that used to be built in other places being moved back to the United States. The biggest example is one of the OEMs used to produce entire cars in South Korea. And import them to the United States. And now they have already discontinued the practice and they will start producing the model here in the United States. So as we move into the second half, things will be more visible. Next year will be even more visible. It takes time, but it is already happening. And the numbers will start to show.

Philip Gibbs: Thanks, Lourenco. I meant last year they were under pressure. I meant the recovery happening now just curious on the level and in terms of how much more you guys can think you can grow that mix looking ahead?

Lourenco Goncalves: We can grow a lot. I will not give you a number. First, because I do not have it. I do not want to give you an inaccurate number. But second, because it all depends on how fast these folks will start producing cars. We are seeing even at some OEMs that do not really produce a lot of cars here in the United States plan to produce the totality of what they sell in this market in the United States. So I think this will be one of the biggest accomplishments of the Trump administration when we look back in three or four years into the future. It will be the resurgence of automotive production in the United States.

And, of course, Cleveland-Cliffs Inc. is the only one that is really equipped to support this growth as we speak. Of course, everybody can build as many plants as they want. It is so easy to build, as you know, to build a blast furnace and a BOF in this country. And so fast. So we should expect that to happen in the next 24 hours. But in the meantime, we are done. We have it. We have the facilities. We have the finishing capabilities. We have all these labs, properly approved with the OEMs. So one of our competitors will not have these labs approved very soon, as you know. Cannot wait to get rid of that slab contract.

That was the last thing that I negotiated when I acquired the assets of ArcelorMittal USA. I am glad I did for only five years. So in the five years, I am coming to an end. December 9, 2025, at 11:59 PM. I think I gave you as much color and volume as I could at this point, Phil.

Philip Gibbs: Thanks, Lourenco. And I have a follow-up for Celso. How much of your overall business is on CRU quarterly? I think I got the rest of the calculations you provided. Thanks.

Celso Goncalves: Yeah. No problem, Phil. It is 5% CRU quarter lag.

Philip Gibbs: Thank you.

Celso Goncalves: No problem.

Rob: The next question is from the line of Martin Englert with Seaport Research Partners. Please proceed with your questions.

Martin Englert: Hello. Good morning, everyone. Appreciate the time. On the coke contracts, the June contract that ended was with Haberheld two for 550,000 tons and that is the December ending contract with Chevron one for 400. Is that correct?

Lourenco Goncalves: Yes. That is correct, Marty.

Martin Englert: Do you have roughly, like, around the $70 per ton benefit when you produce internal coke versus having to buy external on contract, or do you have any goalposts for a range? What that benefit looks like?

Lourenco Goncalves: No. It is bigger than that. It is actually north of a hundred bucks.

Martin Englert: Okay. Appreciate it. One quick follow-up. Are you seeing you mentioned winning some business and out of autos in Mexico. For contracts. Are you seeing anything in the appliance market outside of the United States because of downstream 232 duties? Meaning, if they use US steel, they do not get hit with the duty when importing the appliance.

Lourenco Goncalves: Yeah. It is a different dynamic in the two of them. Well, let us talk about Mexico that some facilities in Mexico were designed to be the dumping ground of transshipments from places like Korea and Japan and others. So that practice is no longer acceptable. So these two suppliers that used to be the supplier for these facilities in Mexico are now buying in the United States. And that is where we are seeing opportunity in Mexico. We are not super excited about it because this is a temporary thing. Do not forget. These plants are not supposed to be in Mexico. They are supposed to be in the United States.

But for now, it is better to sell there instead of allowing steel from Japan to land in Mexico and then depart comes to the United States to unfairly compete with our markets. So that was not the spirit of the USMCA, and we are just bringing back what was in paper and people by pushing the envelope started towing the line and then crossed the line. So we are fixing that. That is the dynamics with Mexico and the United States. As far as appliances, actually, we were able to include appliances in section 232 as well. And that did for appliances exactly what it is doing for automotive.

So they are the big ones are starting to produce appliances in the United States again. And that is also coherent with the growth that President Trump put in place and he is following to what he said he would do. So we are seeing more appliance production in the United States. We will see more appliances production in the United States. And that will be good not just for Cleveland-Cliffs Inc., it will be good for everybody that produces steel here in the United States.

Martin Englert: So broadly speaking, it sounds like when you think about the total market size of fixed annual contracts, that there will be a bigger market to participate in looking forward in the coming quarters, in the coming year? With some of that coming back and also winning business out of the border. Correct?

Lourenco Goncalves: Yes, absolutely. That is a fair statement, it is a fair conclusion.

Martin Englert: Okay. Any considerations when we think about winning more auto market share and fixed contracts in Mexico? On mix or that structure there with the contract or roughly comparable to what you participate in the United States?

Lourenco Goncalves: Very comparable. Very comparable. And the only big difference at this point is freight. But freight is negotiable. And each case is a different case, and we are negotiating accordingly.

Martin Englert: Okay. Appreciate it. And congratulations on the cost performance in the quarter. Thank you.

Lourenco Goncalves: Thank you, Marty. Appreciate the questions and good luck at Seaport and know that you are swimming a bit. Thank you.

Rob: Our next question is from the line of Alex Hacking with Citi. Please proceed with your questions.

Alex Hacking: Yes. Good morning. I just have one question. Lourenco, in your comments, you mentioned that foreign investment in Cleveland-Cliffs Inc. could be an attractive opportunity. There is a lot of potential range in foreign investment, right, from minority stakes and assets to buying the whole company. Could you maybe give more color on what kind of transactions that you would potentially explore? Thank you.

Lourenco Goncalves: Yeah. Look. We are an asset-rich company. And we believe that we are so undervalued at this point that the sum of the parts is a lot more valuable than the company as it trades on the stock exchange. So we are open. And we are, at this point, in active conversations on a number of non-core assets that could be generating billions of dollars in cash inflow that will be used to pay down debt. But we are entertaining a lot of inbound interest from different credible potential suitors for endeavors that we might or might not take going forward.

Alex Hacking: Okay. Thanks a lot, Lourenco.

Lourenco Goncalves: Thank you.

Rob: The next question is from the line of Carlos De Alba with Morgan Stanley. Please proceed with your question.

Carlos De Alba: Thank you. Good morning, gentlemen. So on the cost guidance, sorry, on the cost performance in the quarter, obviously, it was much better than expected. Yet the guidance for the year remained at $50 year-on-year decline. Is this a conservative outlook and then could you potentially perhaps potentially perform better than the $50 decline just in line with what you did in the quarter?

Celso Goncalves: Yeah. You know, look, we wanted to be conservative. And as I stated earlier, we were able to deliver a quarter-over-quarter cost reduction when we initially had an expectation to go up. So some of that has been pulled forward. So that is why we are keeping the same guidance for the full year, but I think your point is a fair point. I think there are opportunities for us to exceed our own expectations. You know, things like scrap and, you know, pig iron tariffs are going to have an impact on the market. We have the coal and coke opportunities that we talked about. You know, we are running our mills more full, more efficiently.

So all those things could provide tailwinds, you know, beyond what we have guided. But we wanted to be conservative and kept the overall guidance for the year flat.

Carlos De Alba: Fair enough. And then can you like, what happened at the end with Dearborn and Cleveland-Cliffs Inc. number six? Can you confirm that Dearborn was idled? You know, any updates there will be great.

Lourenco Goncalves: Yeah. Cleveland-Cliffs Inc. number six is up and running. And the other one is going down. So we replaced one with the other. That is pretty much it. There is no change. I am not sure if I understood your question.

Carlos De Alba: Just wanted to confirm that, Lourenco. So very, very clear. And then if I may, finally, can you provide any further color on the non-core assets that potentially you could sell?

Lourenco Goncalves: Yeah. They are black. Some are blue. Some are yellow. That is the color I can give to you.

Carlos De Alba: Thank you very much.

Lourenco Goncalves: You are welcome.

Rob: Thank you. At this time, I will turn the floor back to management for closing remarks.

Lourenco Goncalves: Thank you, everyone. I appreciate talking to you. Have a good day.

Rob: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

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