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    CLF
    Earnings call· Jun 2026(Q2 FY26)

    CLEVELAND-CLIFFS INC. CLF

    Jul 23, 2026 Source

    Executive summary

    Cleveland-Cliffs Q2 FY26 — Strong Earnings Recovery and Positive Free Cash Flow

    Cleveland-Cliffs reported a strong earnings recovery in Q2 FY26, driven by improved pricing, higher shipping volumes, and lower costs, particularly in the automotive sector. The company anticipates continued momentum into the second half of 2026 and 2027, supported by favorable trade policies and significant opportunities from fixed-price contract resets. Management is focused on deleveraging and optimizing operations, with key capital projects underway to enhance capabilities.

    Highlights

    5

    • Adjusted EBITDA tripled from Q1 to $286 million in Q2 FY26.

    • Returned to positive free cash flow in Q2 FY26 after two years of negative FCF.

    • Expected Q3 FY26 adjusted EBITDA of $575 million, more than doubling Q2.

    • Automotive steel shipments in Q2 FY26 were the highest in the last two years.

    • Anticipate a $500 million year-over-year EBITDA improvement from fixed-price contract resets in 2027.

    Concerns

    3

    • Q2 FY26 maintenance outages and lagged contracts still understating full asset capability.

    • Stelco's galvanizing lines in Canada are at risk without further trade protection measures from the Canadian government.

    • Q3 FY26 working capital is likely to be a slight build due to increasing pricing.

    Guidance & targets

    6
    CategoryTargetConfidence
    Adjusted EBITDA
    $575 million
    high materiality
    High
    Adjusted EBITDA
    Further outperform Q3
    high materiality
    High
    Adjusted EBITDA
    More improvements
    medium materiality
    Medium
    Net Debt to EBITDA ratio
    Sub 2.5x
    high materiality
    High
    EBITDA improvement from fixed-price contract resets
    $500 million
    high materiality
    High
    Middletown project announcement
    Public announcement in the next months or so
    medium materiality
    High

    Operational metrics

    13
    Adjusted EBITDA
    $286 milliontripled from Q1
    Q2 FY26

    Company's best quarter in 2 years.

    Steel shipment volumes
    just over 4 million tonsdown sequentially from previous quarter
    Q2 FY26

    Due to maintenance outages and improved automotive demand with longer lead times.

    Steel shipment volumes
    above 4.3 million tons
    Q3 FY26

    Order book remains strong and backlogs are extended.

    Average selling price
    $76increased
    Q2 FY26

    As pricing lags started to materialize and richer product mix from automotive.

    Average selling price increase
    $55increase
    Q3 FY26

    Expected increase based on visibility on pricing for nearly every ton shipped.

    Unit costs reduction
    $10reduction
    Q3 FY26

    Expected reduction after Q2 inventory lag effect and maintenance outages are behind.

    Property sales proceeds
    $400 million
    H2 FY26

    Bulk of proceeds expected from major property sales, all under contract with earnest money.

    Working capital
    $55 millionrelease
    Q2 FY26

    Driven by reduction in inventory and slight build in accounts payable offset by accounts receivable.

    Working capital
    slight build
    Q3 FY26

    Likely due to increasing pricing.

    Automotive coating volumes
    back to strong levelssaw back in 2023
    Q2 FY26

    Due to multiyear contracting strategy, reshoring, and supply chain disruptions for competitors.

    Finishing lines utilization
    healthy levelsuboptimal for last couple of years
    Q2 FY26

    With favorable impact on costs.

    Grain-oriented electrical steels production increase
    25%
    Post-2028

    From the induction reheat furnace upgrade.

    Fixed price contracts pricing levels
    $800 level
    Last year

    Prevailing prices when contracts were last renewed, compared to current $1,150+ level.

    Industry KPIs

    4
    MetricValueDetails
    Safetybest in class
    Unit cash cost$10per ton
    Growth project CAPEX first production—
    Production sales volume by metal and by minejust over 4 million tonstons

    Deals & partnerships

    1
    POSCOOngoing discussions regarding potential strategic benefits and valuation for Cliffs' assets (HBI, FPT)

    Discussions remain friendly and ongoing, but Cliffs has no deadline and will only transact if valuation and structure are met. Offers received so far have fallen short of value threshold. HBI has become substantially more valuable for Cliffs due to strong order book.

    Capital programs

    2
    Bottler Works induction reheat furnace upgradeprogressing well
    Funding: DOE grant

    Benefit: Ability to supply more tons of high-end grain-oriented electrical steels; 25% increase in production at that plant

    Will provide ability to supply more tons of high-end grain-oriented electrical steels needed by the country.

    Middletown blast furnace reline and optimizationmajor progress on rescoping
    Funding: DOE grant

    Benefit: Optimizing furnace, maximizing energy efficiency by capturing and using blast furnace gas to generate electricity on-site

    In compliance with Trump administration's energy dominance goals. Public announcement expected in the next months or so.

    Risks & headwinds

    3
    Competitiveness of Stelco's galvanizing lines in Canada

    At risk

    Mitigation: Continuing to defend point of view with Canadian government officials, potentially changing Canadian footprint to produce more hot rolled steel if no further measures are taken.

    Understated asset capability due to maintenance outages and lagged contractsQ2 FY26

    Understates where company is headed

    Mitigation: Outages are behind, lagged contracts are materializing, expecting full capability to be more visible in Q3 FY26.

    Macroeconomic uncertainty and automotive manufacturers' commitment to reshoring

    Slow increments from car manufacturers

    Mitigation: Cliffs is ready to restart Dearborn blast furnace (2M+ tons capacity) if auto manufacturers show conviction in bringing production back to the U.S. and using steel, but they are currently moving in small increments.

    What to watch in Q3 FY26

    5

    Adjusted EBITDA performance

    Q3 FY26 and Q4 FY26
    Current$286 million (Q2 FY26)
    TargetAbove $575 million (Q3 FY26 guide) and further improvement in Q4 FY26

    Why it matters

    Verifies the company's strong earnings recovery and momentum into the second half of the year.

    We expect adjusted EBITDA of approximately $575 million in the third quarter, which would be our strongest quarter in 3 years. With where the curve for HRC stands today, we would expect even further improvement on that figure in the fourth quarter, even with the typical seasonal slowdown we usually see around the holidays.

    Q&A highlights

    6

    Can you provide more color on the resetting of non-automotive fixed-price contracts, specific products, and timing? Also, what are the expectations for automotive contracts for next year?

    Non-automotive contract resets will occur in H2 FY26, concluding by early December, with expectations for much higher prices due to the current market. For automotive, Cliffs is the dominant supplier in the U.S. and will be more selective, aiming for higher prices and increased market share, leveraging trade policies that favor domestic production.

    “We are getting market share from them at [ wheel ]. And if we want to take all their business, we take all their business. So we are in good shape, and we are going to play for higher prices. We're going to be more selective. And we are going to reset this number higher numbers higher. That's the bottom line.”

    asked by Carlos De Alba · answered by Lourenco Goncalves

    3 min read7 chapters

    Detailed Narrative

    01

    Strong Earnings Rebound and Outlook

    Cleveland-Cliffs reported a significant rebound in Q2 FY26, with adjusted EBITDA tripling quarter-over-quarter to $286 million and a return to positive free cash flow after two years. The company projects Q3 FY26 adjusted EBITDA to reach $575 million, driven by higher prices, lower costs, and increased shipping volumes. Management expects Q4 FY26 to further outperform Q3, with additional improvements anticipated in 2027, signaling a robust earnings environment ahead.

    02

    Automotive Sector Strength and Reshoring

    The automotive sector remains a key driver, with Q2 FY26 shipments to automotive clients being the highest in two years. Cliffs continues to be a preferred supplier, receiving top awards from Toyota and General Motors. The ongoing reshoring of automotive production in the U.S., supported by Section 232 trade policies, is creating strong demand for domestic steel. The company's multiyear contracting strategy and favorable market dynamics are contributing to strong automotive coating volumes.

    03

    Trade Policy Impact and North American Market

    Management strongly attributes the improved market conditions and manufacturing investment to Section 232 trade policies, which have combated illegal dumping of steel. The company believes these policies are crucial for maintaining a strong domestic steel industry and manufacturing base. Discussions around USMCA are expected to further benefit North American steel producers through stronger content requirements and enforcement of rules of origin. The extension of Canada's tariff rate quota system through June 2027 is also noted as a positive step, though more is needed for the Canadian industry.

    04

    Cost Management and Operational Efficiency

    After an increase in unit costs in Q2 FY26 due to inventory lag and maintenance outages, the company expects a $10 per ton reduction in costs for Q3 FY26, with further improvements anticipated in Q4. These cost reductions are driven by higher utilization, optimized production schedules, and AI-based initiatives with Palantir. Efficiency gains are also expected from upcoming blast furnace relines and capital projects.

    05

    Capital Allocation and Deleveraging Focus

    Debt paydown is the top capital allocation priority, with a target to achieve a net debt-to-EBITDA ratio of sub 2.5x by Q2 FY27. This will be supported by ongoing free cash flow generation and the bulk of $400 million in property sales proceeds expected in H2 FY26. The company emphasizes its strong balance sheet with no maturities until 2029, allowing for a focused deleveraging strategy.

    06

    Strategic Projects and Negotiations

    Cleveland-Cliffs is progressing with key capital projects, including the Bottler Works induction reheat furnace upgrade (completion 2028) to increase high-end grain-oriented electrical steel supply, and the rescoping of the Middletown project for energy efficiency. Discussions with POSCO remain ongoing and friendly, but the company is not under pressure to transact and will only proceed if valuation and structure meet its thresholds, reflecting the increased value of its assets like HBI.

    07

    Union Negotiations and Safety Record

    Negotiations with the United Steelworkers Union for a new collective bargaining agreement have begun constructively, aiming for a competitive and sustainable outcome. The company also highlighted its best-in-class total recordable injury rate for the last three years, which has led to meaningful reductions in workers' compensation expenses and related costs, underscoring safety as a good business practice.

    AI-generated summary of the company’s earnings call. Not investment advice.