To what extent will working capital unwind in Q2, and what is the current status and dynamics of the POSCO deal negotiations?

A slight release in working capital is expected in Q2, primarily driven by a further reduction in inventory. Regarding POSCO, the global environment has changed significantly since initial discussions, with stronger US markets and increased automotive OEM demand for Cliffs' steel. This has reduced Cliffs' urgency for the deal, though discussions are ongoing, aiming for an accretive outcome. “We are still engaged, we're still talking. We still like each other. We still want to deal that is accretive for our shareholders. And I assume that they want the same thing for their site. Let's see what happened next. But we are -- by any stretch, we are no longer in a hurry. We are not before. We are a lot less in a hurry now.”

Can you elaborate on exposure to diesel in upstream mining operations, its impact on unit cash costs, and any hedging activities?

Diesel is a meaningful cost component for mining operations. The company does not hedge diesel. The annual impact on mining costs from truck and rail services is about $50 million, or $6 per ton, consuming approximately 25 million gallons per year. Natural gas associated with mining is about 20% of overall natural gas consumption. “Diesel is a meaningful cost component of the mining operations. We don't hedge diesel anymore. We hedge natural gas, primarily 50% of our exposure, but since we became a steel company, we don't hedge diesel anymore. So the impact -- the annual impact on kind of truck and rail services overall is about a $50 million annual impact on mining costs, which is about $6 per ton.”

What drives the expected 15% increase in Q2 costs per ton, and what gives confidence in the anticipated drop-off in Q3?

Q2 costs are impacted by inventory carryover from Q1's high energy costs, a richer product mix (more automotive), scheduled outages, and war-related costs (diesel, freight). Confidence in a Q3 drop-off stems from improved utilization, fewer outages, lower energy costs, continued asset optimization, lower coal pricing, and reduced repair and maintenance costs. “Q2 is a big outage quarter. So pricing -- I'm sorry, costs naturally would tick up on a per ton basis due to the outages. And then Q3 is a very outage light quarter. So inventory from the high-cost period has sort of worked down into the subsequent quarters. And then we're continuing to see automotive volume ramping. Every unit is running at higher utilization. So as that materializes into Q3, that's when you're going to see the benefit of the cost dilution.”

CLF

Cleveland-Cliffs (CLF) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Materials· Apr 20, 2026

Source: earnings call transcript

Executive summary

Cleveland-Cliffs Q1 FY26 — Strong Order Book and Improving Pricing Momentum

Cleveland-Cliffs reported a Q1 FY26 marked by significant sequential improvement, driven by a full order book and strengthening pricing. Despite a one-time $80 million energy cost impact, the company anticipates sustained positive momentum through the year, with Q2 and Q3 expected to show further gains in profitability and cash flow. Strategic footprint optimization and a focus on domestic supply chain resilience are positioning the company for enhanced competitiveness, though ongoing discussions with POSCO face external headwinds.

Highlights

Adjusted EBITDA of $95 million in Q1 FY26, a $274 million increase year-over-year.
Q1 shipments totaled over 4.1 million tons, a sequential recovery of more than 300,000 tons.
Average selling prices increased by $68 per ton year-over-year and $55 per ton sequentially.
Automotive shipments reached their highest level in almost 2 years during Q1, expected to increase further in Q2.
SG&A operating at an all-time low on a quarterly basis, demonstrating cost discipline.

Concerns

Energy spike drove an $80 million negative impact to EBITDA in Q1 FY26.
Q1 free cash flow was negative due to working capital timing.
Canadian steel selling price is at a 40% discount to U.S. pricing due to oversupply.
Q2 costs are expected to tick up another $15 per ton higher due to scheduled outages, higher fuel, and scrap costs.
Currency disruption in the Middle East and its impact on South Korea have slowed POSCO deal discussions.

Guidance & targets

Category	Target	Timeline	Confidence
Q2 Shipments	above 4.1 million tons medium materiality	Q2 · FY26	High
Q2 Average Selling Prices	up about $60 per ton high materiality	Q2 · FY26	High
Q2 Cost per Ton	tick up another $15 per ton higher medium materiality	Q2 · FY26	High
Free Cash Flow	return to meaningful positive high materiality	Q2 · FY26	High
EBITDA	best quarter in nearly 2 years high materiality	Q2 · FY26	High
Asset Sales Proceeds	$425 million medium materiality	FY26	High
Asset Sales Proceeds Cadence	$50 million in Q2, $100 million in Q3, remainder in Q4 medium materiality	Q2-Q4 FY26	High
Full-year Shipments	16.5 million to 17 million tons high materiality	FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Canada (Stelco) Effectively all shipments are sold on a spot price basis. Pricing is at a 40% discount to U.S. pricing, but still margin positive for Stelco. Historically, Canadian pricing was in line with U.S. pricing. Selling price discount to U.S. pricing: 40%	—	—	—	margin positive

CLF operating KPIs by quarter

CLF operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Sep 2026 Q3 FY26	Change vs prior quarter
Shipments	4.1M tons+ First quarter shipments totaled just over 4.1 million tons, which represents a recovery of more than 300,000 tons sequentially. Source: earnings call transcript	4M tons+ Second quarter shipments were just over 4 million tons, down sequentially from the previous quarter due to the maintenance outages we underwent during the quarter as well as improved automotive demand, which comes with longer lead times. Source: earnings call transcript	4.2M tons Steel shipments were 4.2 million net tons, compared with 4 million net tons in the second quarter. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline	Details
AI Initiative for Production Planning	roadmap	next few weeks (full announcement)

Deals & partnerships

POSCO Discussions regarding a mutually satisfactory transaction, following a memorandum of understanding signed last year.

Goal remains achievable, but currency disruption in the Middle East and its impact in South Korea have not accelerated conclusion. Company's improved market position in the US has reduced urgency.

Capital programs

Butler Works electrical steel expansion project on schedule

Funding: Department of Energy-funded

Project is moving along as planned and remains on schedule for 2028 completion.

Middletown Works project will proceed

Funding: Department of Energy-funded

Benefit:modern blast furnace configuration, among the most energy efficient in the world

Received clear affirmation that the project will proceed once the updated scope is finally approved. Now in final stages of completing that work. The revised scope reflects a modern blast furnace configuration.

Risks & headwinds

Energy Cost Spike Q1 FY26

$80 million negative impact to EBITDA

Mitigation:Natural gas and electricity prices have normalized since Q1.

Canadian Market Oversupply Q1 FY26

Canadian selling price at a 40% discount to U.S. pricing

Mitigation:Confidence that Canada will implement national security defenses against foreign steel dumping, similar to the U.S.

Geopolitical Disruption Q1 FY26

War activity in Iran disrupted global freight lanes, driven up energy prices, destabilized metal supply chains

Mitigation:Strengthens the position of domestic steel producers like Cleveland-Cliffs as imported steel becomes structurally more expensive.

Increased Q2 Costs Q2 FY26

Q2 cost should tick up another $15 per ton higher

Mitigation:Expected to fall meaningfully in the back half of the year due to improved utilization, lower outages, and lower energy costs.

Labor Agreement Renegotiation coming months

No specific quantification, but potential for impact on competitiveness, flexibility, and long-term sustainability

Mitigation:Approaching discussions with respect and realism, aiming for an agreement that rewards workforce while strengthening company's ability to invest and grow.

What to watch in Q2 FY26

Q2 Adjusted EBITDA

Q2 FY26

Current $95 million (Q1 FY26)

Target Best quarter in nearly 2 years

Why it matters

EBITDA is a key profitability metric, and Q2's performance will indicate the strength of the market and operational improvements.

From both an EBITDA and cash flow standpoint, Q2 should be our best quarter in nearly 2 years.

Find out whether CLF delivers this. Inve re-checks your case every morning.

Q&A highlights

What are the Q2 price expectations given the extended lag, and what was the tonnage and EBITDA impact from the final slab shipments on the Metal slab contract?

Q2 selling prices are expected to be up about $60 per ton. The final slab shipments for the Metal slab contract totaled 175,000 tons, which was a drag but is now complete. The contract mix for sales was detailed, with 43% fixed, 23% monthly indexed, 7% quarterly indexed, 12% US spot, and 15% Stelco spot.

“Selling prices are expected to be up about $60 a ton from Q1 to Q2. We expect to see the same kind of benefits we saw in Q1 related to pricing. The monthly quarterly and spot pricing are all up Canadian pricing is improving.”

asked by Carlos de Alba · answered by Celso Goncalves

2 min read 6 chapters

Detailed narrative

Market Dynamics and Trade Enforcement

The steel market is characterized by a full order book, tight production schedules, and extended lead times, now closer to 2 months for pricing changes to flow through. This strength is attributed to effective trade enforcement, with steel imports at their lowest levels since 2009 due to Section 232 and melted and poured mandates.

Recent changes in derivative product tariffs, including distribution transformers, further support domestic producers. The company expresses confidence that Canada will implement similar national security defenses against foreign steel dumping.

Aluminum to Steel Substitution Trend

Cleveland-Cliffs is observing significant momentum in the substitution of aluminum with steel, particularly in the automotive sector, but also in building products, appliances, and truck trailers. Automotive OEMs are prioritizing supply certainty, total cost, and safety, finding Cliffs Steel to deliver these without the fragility of aluminum supply chains.

The company has demonstrated to clients the potential benefits of using steel in equipment previously exclusive to aluminum, leading to market share gains.

Operational Optimization and Efficiency

The company is continuing its footprint optimization actions, including idling the smaller 110-inch plate mill at Burns Harbor and the Gary plate finishing line. This consolidation into the 160-inch mill improves utilization, strengthens cost performance, and removes inefficient lines without sacrificing capability or leading to layoffs. These changes, coupled with positive plate market momentum, are expected to enhance earnings from the plate business.

Rare Earths and AI Initiatives

Cleveland-Cliffs is analyzing its potential in critical rare earth minerals, but notes that the economics hinge on viable domestic refinement capability, which is currently limited and capital-intensive. The company does not intend to pursue refinement itself but is well-positioned to capitalize if infrastructure becomes available.

Additionally, Cliffs has partnered with a leading AI provider to embed machine learning into production planning and order entry processes, aiming to move from human experience-driven planning to AI-assisted decision-making for optimized operations.

Labor Agreement Renegotiation

The company will navigate the renegotiation of its labor agreement with United Steelworkers in the coming months. Management emphasizes the importance of ensuring the agreement supports competitiveness, flexibility, and long-term sustainability in an evolving, capital-intensive industry. The discussions are approached with respect and realism, aiming for an agreement that rewards the workforce while strengthening the company's ability to invest and grow.

Toyota Quality Excellence Award

In February, Cleveland-Cliffs received the Toyota Quality Excellence Award from Toyota. This award confirms that the company's processes, consistency, execution, and overall quality meet Toyota's high standards, which are among the strictest in the world. This recognition underscores the high quality of Cliffs' steel products.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.