Cleveland-Cliffs' Three Pillars: Can Steel Turn the Tide by 2026?

The U.S. steel industry faces a paradox: it’s both vital to the economy and perpetually grappling with overcapacity, trade wars, and cyclical demand swings. For Cleveland-Cliffs (CLF), the nation’s largest flat-rolled steel producer, survival hinges on execution. The company’s 2025 strategic plan centers on three pillars aimed at delivering over $1 billion in EBITDA improvements by 2026. Let’s dissect whether this blueprint can transform CLF from a laggard into a leader.

Pillar 1: Automotive Volume Recovery – Betting on the Road Ahead

Automotive steel represents 29% of CLF’s revenue, yet its potential remains underutilized. The company aims to recover $250–$500 million in EBITDA by boosting automotive sales, a segment where vertical integration gives it an edge. CLF controls every step from iron ore mining to final steel production, enabling it to meet exacting automotive specs.

However, success depends on U.S. automotive demand rebounding—and tariffs on imported vehicles. The Biden administration’s proposed 25% tariff on non-U.S.-made electric vehicles could redirect production to domestic suppliers like CLF. Yet, automakers may resist higher costs, creating uncertainty.

Pillar 2: Footprint Optimization – Cutting Costs, Not Corners

The second pillar targets $300 million+ in annual EBITDA savings through operational streamlining. Key moves include:
- Idling the Dearborn hot end and restarting the Cleveland #6 blast furnace, saving $125M annually.
- Halting the Weirton transformer project, slashing 2025 CapEx by $50M.
- Closing three underperforming facilities (Riverdale, Conshohocken, Steelton) to eliminate $165M in annual losses.

This “right-sizing” is bold but risky. Closing plants could face union pushback or logistical hurdles. Still, CLF’s focus on high-margin products like coated and automotive steel aligns with demand trends, potentially justifying the pain.

Pillar 3: Slab Contract Exit – A $500M Windfall?

The third pillar hinges on terminating a loss-making slab supply agreement with ArcelorMittal/Nippon Steel Calvert by December 2025. The deal, which cost CLF $500M in annual EBITDA, was battered by tariffs on Brazilian slab imports. Ending it frees CLF to sell 1.5 million tons of slab to higher-margin markets.

This is the largest single EBITDA driver in the plan. Yet, success requires CLF to retool its sales mix swiftly—a challenge if global overproduction keeps prices depressed.

Supporting the Steel: Debt and Liquidity

CLF’s strategy also addresses its $7.2 billion debt pile. The company aims to slash leverage to 2.5x net debt/EBITDA by 2026, using 100% of cash flow for debt repayment. With $3.0 billion in liquidity and $3.3 billion in secured notes, it’s financially fortified—provided operational plans don’t stumble.

Risks in the Steelworks

• Global Overcapacity: China’s steel output remains elevated, suppressing prices.
• Trade Policy Volatility: Tariffs could shift, undermining CLF’s automotive strategy.
• Execution Delays: Plant closures and restarts are complex; delays could eat into savings.
• Stelco’s Canadian Stumble: The Canadian-focused acquisition faces weak demand and high costs.

Conclusion: A Steelier Future?

Cleveland-Cliffs’ three pillars are audacious but mathematically compelling. The $1 billion EBITDA target breaks down neatly:
- Automotive: $375M (midpoint of range)
- Footprint: $300M
- Slab Contract: $500M

Add cost reductions of $160/ton over three years, and CLF’s breakeven point tightens. If executed, these moves could cut net debt/EBITDA to 2.5x by 2026, a dramatic improvement from its current 5.8x.

The key question is execution. CLF’s track record isn’t flawless—its 2023 loss of $2.1 billion highlights operational challenges. Yet, the current plan’s granularity, from specific plant closures to tariff-driven automotive growth, suggests management has learned from past missteps.

Investors should monitor two metrics: steel prices (critical for margin expansion) and plant restart timelines (Dearborn and Cleveland #6). If CLF delivers on these, its stock—currently trading at $12.50/share (down 15% YTD)—could rebound sharply. But steel is a cyclical beast; success requires both strategy and timing. For now, the blueprint is there. The steel is in the fire.