Cleveland-Cliffs: Steeling Ahead Through Efficiency and Policy Winds

The steel sector has been a battleground of cost pressures and structural shifts for years, but Cleveland-Cliffs (NYSE: CLF) is positioning itself to emerge as a winner. Amid a backdrop of rising protectionism, strategic asset pruning, and a tailwind from automotive electrification, the company's focus on operational efficiency and policy-driven demand shifts could catalyze a turnaround by late 2025. For investors, the question is whether CLF's valuation and catalysts justify a contrarian bet.

Operational Restructuring: Cutting Fat to Build Muscle
Cleveland-Cliffs' recent moves reflect a ruthless prioritization of its core automotive steel business. By idling six underperforming facilities, the company aims to slash annual costs by over $300 million—excluding further overhead reductions and productivity gains. This pivot underscores management's resolve to abandon non-core assets, a strategy that has already borne fruit. The decision to halt construction of a $500 million green steel plant in West Virginia, for instance, reduced 2025 capital expenditures from $700 million to $625 million, freeing capital for debt repayment.

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is emblematic of the company's structural advantages. Its vertically integrated model—from iron ore mining to finished steel—gives it cost discipline and resilience in volatile markets.

While Q1 2025's adjusted EBITDA loss of $174 million (versus $81 million in Q4 2024) highlights near-term pain, the path to profitability is clearer. The expiration of its unprofitable five-year slab contract with ArcelorMittal/Nippon Steel Calvert by year-end 2025 is a critical inflection point. This deal, which has been a drag on margins, will free up $500 million in annual EBITDA starting 2026—a number that could single-handedly turn CLF's annual losses into profits.

Tariff Tailwinds: A Shield Against Global Overcapacity
The Trump-era Section 232 tariffs, which doubled to 50% on steel imports in June 2025, are a game-changer for domestic producers like CLF. By raising the cost of foreign competition, these tariffs create a “floor” for U.S. steel prices, allowing CLF to pass through cost increases without losing market share. In July 2025, the company raised its Cliffs HR Market Price to $950/ton—a $40/ton increase from June—reflecting this newfound pricing power.

The automotive sector, which accounts for 36% of CLF's revenue, is the prime beneficiary. As EV adoption accelerates—projected to hit 21 million units globally by 2030—CLF's advanced C-STAR protection systems for EV battery enclosures and lightweight, high-strength steel for vehicle frames position it as a critical supplier to OEMs. The tariffs ensure that foreign competitors cannot undercut CLF's pricing in this high-margin segment, while vertical integration shields it from raw material volatility.

Debt Dynamics: Navigating Liquidity and Leverage
CLF's total debt of $7.6 billion as of March 2025 remains daunting, but its liquidity ($3.0 billion) and disciplined capital allocation provide breathing room. Management has pledged to use 100% of free cash flow for debt reduction, targeting a leverage ratio of 2.5x (Net Debt/TTM Adjusted EBITDA) by late 2026. With the slab contract's exit and cost savings kicking in, this goal appears achievable.

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illustrates how its restructuring is aligned with demand trends.

Risks and Challenges
The road is not without potholes. Macroeconomic headwinds—such as a potential recession or a slowdown in EV adoption—could delay margin improvements. China's dominance in rare earth minerals, critical for EV batteries, poses a supply chain risk. Additionally, execution risks persist: idling facilities and cutting costs require flawless execution to avoid operational hiccups.

Investment Thesis: A Contrarian Opportunity in a Turnaround Story
CLF's current valuation presents an intriguing opportunity. Trading at ~4x EV/Forward EBITDA (assuming the $500 million slab benefit materializes), the stock offers asymmetric upside if the company meets its leverage targets and benefits from rising U.S. steel demand. The $500 million EBITDA tailwind alone could lift CLF's valuation to ~$10–$12 per share by 2026, a 60% premium to its June 2025 price.

Final Word
Cleveland-Cliffs is at a pivotal juncture. Its operational restructuring, tariff-driven pricing power, and automotive sector dominance align it with long-term trends in U.S. manufacturing reshoring and EV adoption. While risks remain, the confluence of margin improvements, debt reduction, and expiring liabilities makes CLF a compelling contrarian play for investors with a 12–18 month horizon. The steel sector's darkest days may well be behind it—thanks in no small part to Cleveland-Cliffs' grit.

Investment recommendation: Consider accumulating CLF at current levels, with a target price of $12 by mid-2026, contingent on EBITDA recovery.