Cleveland-Cliffs (CLF): Navigating the Post-Tariff Steel Renaissance and the Road to Profitability

In the volatile world of industrial commodities, Cleveland-Cliffs (CLF) has emerged as a case study in resilience and strategic recalibration. The company's Q2 2025 earnings report, while still showing a GAAP net loss of $470 million, marked a critical inflection point. Adjusted EBITDA improved to $97 million—a $271 million turnaround from Q1 2025—highlighting the early fruits of aggressive cost-cutting and operational restructuring. For investors seeking exposure to the post-tariff U.S. steel renaissance, CLF's journey offers both promise and peril.

Regulatory Tailwinds: Tariffs as a Double-Edged Sword

The Trump administration's 25% tariffs on steel and aluminum imports, alongside reciprocal trade measures, have reshaped the U.S. steel landscape. While these policies have shielded domestic producers from cheap, subsidized imports—particularly from China—they have also disrupted traditional supply chains. For Cleveland-Cliffs, the tariffs have been a mixed blessing. On one hand, they've driven steel prices upward, with the company's hot-rolled coil (HRC) price climbing to $975/ton in July 2025. On the other, they've contributed to a slowdown in automotive demand, a key market for CLF, forcing the company to idle facilities and cut 1,230 jobs.

Yet, the long-term calculus is favorable. The tariffs have effectively raised the cost of foreign competition, creating a more level playing field for domestic producers. Cleveland-Cliffs' CEO, Lourenco Goncalves, has been vocal about the strategic value of these policies, arguing they protect national security and incentivize reshoring. The company's recent termination of a low-margin slab contract with ArcelorMittal/Nippon Steel Calvert—a $500 million annualized EBITDA boost—exemplifies how CLF is leveraging the new regulatory environment to shed unprofitable obligations.

Cost Optimization: The Path to Operational Efficiency

Cleveland-Cliffs' Q2 results underscore the importance of cost discipline. The company reduced steel unit costs by $15 per net ton in Q2 2025, with further reductions of $50 per ton expected by year-end. This progress stems from idling six underperforming facilities, including the Dearborn Works blast furnace and the Riverdale compact strip mill, which are projected to save $300 million annually. These moves, while painful in the short term, are critical to aligning CLF's cost structure with its revised production focus on high-margin automotive steel.

The company's liquidity position—$2.7 billion as of June 30, 2025—provides breathing room to execute its strategy. Management has also revised 2025 guidance downward for capital expenditures ($600 million) and SG&A expenses ($575 million), prioritizing debt reduction and operational flexibility. With a target leverage ratio of 2.5x net debt/EBITDA by late 2026, CLF is signaling a clear path to regaining financial stability.

Market Dynamics: Steel Prices and Demand Volatility

Despite regulatory tailwinds, CLF faces headwinds from a cautious domestic market. U.S. steel prices stabilized in May 2025, with HRC trading between $885–$938/ton and cold-rolled coil (CRC) at $1,105–$1,130/ton. However, demand remains flat, with buyers adopting a wait-and-see approach amid ongoing tariff negotiations. Cleveland-Cliffs' ability to command premium pricing for advanced materials—such as lightweight, high-strength steel for EV battery enclosures—will be key to outperforming peers.

The company's exposure to the automotive sector (26% of direct sales in Q2 2025) is both a strength and a vulnerability. While the U.S. automotive market is rebounding, the transition to EVs and reshoring of manufacturing could create long-term tailwinds. CLF's recent investments in hydrogen-based decarbonization technology at its Middletown and Butler facilities align with the Inflation Reduction Act's incentives for clean manufacturing, positioning the company to capture emerging demand.

Strategic Risks and Reward Potential

Investors must weigh CLF's turnaround potential against significant risks. The company's $7.7 billion in long-term debt and $3.3 billion in secured note capacity create liquidity pressures, particularly if steel prices or demand deteriorate. Operational risks—such as supply chain disruptions or equipment failures—could also delay cost savings. Additionally, the Trump administration's trade policies, while beneficial in theory, remain subject to political shifts and retaliatory measures from trading partners.

However, the risk-reward profile is compelling. CLF's strategic initiatives—idling non-core assets, renegotiating contracts, and aligning with policy-driven demand—position it to capitalize on the U.S. steel renaissance. The company's updated guidance, including $50/ton cost reductions and controlled capital spending, suggests management is focused on restoring profitability.

Conclusion: A High-Conviction Play on the Steel Renaissance

Cleveland-Cliffs is at a pivotal juncture. The company's Q2 2025 results demonstrate that its cost-cutting and restructuring efforts are beginning to yield results, but sustained profitability will depend on maintaining pricing power and executing its operational playbook. For investors willing to stomach short-term volatility, CLF offers a high-conviction bet on the post-tariff U.S. steel renaissance.

Investment Thesis:
- Catalysts: Tariff-driven pricing power, $500 million EBITDA boost from contract termination, $300 million annual cost savings from idled facilities.
- Risks: Debt load, demand volatility, and geopolitical trade tensions.
- Valuation: With a current enterprise value of ~$8.5 billion and a path to $2.5x leverage by 2026, CLF is trading at a discount to its historical average.

Cleveland-Cliffs is not a get-rich-quick play but a long-term bet on the structural shift toward domestic steel production. For those who believe in the durability of U.S. trade policies and the company's ability to execute its turnaround, CLF could deliver outsized returns by 2027.