Cleveland-Cliffs Q1 Adjusted Loss and Revenue Decline Signal Strategic Shifts Ahead

Cleveland-Cliffs Inc. (CLF), the largest U.S. steel producer, reported a challenging first quarter of 2025, marked by an adjusted net loss of $456 million and a 11% year-over-year revenue decline to $4.6 billion. While these figures underscore near-term headwinds, the company’s aggressive cost-cutting measures and strategic asset realignment suggest a long-term focus on profitability. Investors must weigh short-term pain against the potential for a stronger position in core markets like automotive and infrastructure.

Financial Performance: Headwinds and Operational Challenges

Cleveland-Cliffs’ Q1 results reflect significant pressure from both macroeconomic and self-imposed factors. Revenue fell to $4.6 billion from $5.2 billion in Q1 2024, driven by:
- A drag from the loss-making slab contract with ArcelorMittal/Nippon Steel Calvert, which accounts for 10% of shipments.
- Lower steel prices due to oversupply and import competition.
- Underperformance at non-core facilities like the Steelton rail mill and Conshohocken plate finishing plant.

The adjusted net loss of $456 million (vs. $332 million in Q4 2024) was exacerbated by a $174 million adjusted EBITDA loss, a sharp deterioration from the $81 million loss in late 2024. However, management emphasized that these figures include costs from idling facilities and restructuring, which are one-time in nature.

Strategic Shifts: Cutting Costs and Focusing on Core Markets

To address these challenges, Cleveland-Cliffs has taken decisive actions to streamline operations and redirect capital toward high-margin segments:
1. Asset Idling and Closure: Six facilities—including the Minorca mine, Steelton rail mill, and Conshohocken plant—were fully or partially idled between March and May 2025. These moves are expected to save over $300 million annually, excluding further overhead reductions.
2. Contract Termination: The company plans to exit its unprofitable five-year slab contract with ArcelorMittal by late 2025. This decision alone could add ~$500 million annually to EBITDA starting in 2026.
3. Market Rebalancing: Steel product sales volumes rose to 4.1 million net tons in Q1 2025, with 29% of revenue coming from automotive OEMs—a segment poised for recovery due to U.S. trade policies favoring domestic steel.

Liquidity and Debt Management: A Solid Foundation for Recovery

Despite the losses, Cleveland-Cliffs maintains robust liquidity, with $3.0 billion in cash and $3.3 billion in secured note capacity as of March 2025. Management has also revised full-year guidance to prioritize cost discipline:
- Steel unit cost reductions increased to $50 per net ton (up from $40).
- Capital expenditures cut to $625 million (down from $700 million).
- SG&A expenses reduced to $600 million (down from $625 million).

These moves align with CEO Lourenco Goncalves’ focus on “right-sizing” the business to capitalize on long-term demand from automotive and infrastructure sectors.

Risks and Uncertainties

While the strategy appears sound, Cleveland-Cliffs faces significant risks:
- Steel Price Volatility: Global oversupply and trade disputes could keep prices depressed.
- Integration Challenges: The pending acquisition of Stelco, a Canadian steelmaker, could strain resources.
- Regulatory and Labor Pressures: Environmental regulations and pension obligations remain financial liabilities.

Conclusion: A Steely Resolve for Recovery

Cleveland-Cliffs’ Q1 results are undeniably weak, but the company’s aggressive restructuring and focus on high-margin automotive markets position it for a turnaround. The termination of the ArcelorMittal slab contract alone could add over $500 million annually to EBITDA by 2026—a critical tailwind. With $3 billion in liquidity and a debt maturity profile that avoids major repayments until 2028, the balance sheet provides a safety net.

Investors should monitor two key metrics:
1. Q4 2025 EBITDA: The expected exit from the slab contract should start boosting margins by late 2025.
2. Automotive Sales Growth: Cleveland-Cliffs’ 29% revenue reliance on automotive OEMs hinges on U.S. trade policies and demand for electric vehicles.

While shares may remain volatile in the near term, Cleveland-Cliffs’ strategic moves suggest a disciplined path toward profitability. For long-term investors, the stock’s current valuation—trading at ~0.4x book value—could represent a bargain if the restructuring succeeds. As Goncalves noted, “We are not just surviving—we are positioning to win.” The next 12–18 months will test that resolve.