Cleveland-Cliffs Inc. (CLF) | The Buildout — AI Infrastructure
The Verdict
Cleveland-Cliffs is a vertically integrated steel producer that mines iron ore and manufactures flat-rolled, tubular, and electrical steel products. The company is the sole domestic producer of grain-oriented electrical steel (GOES), used in transformer cores for electrical grid infrastructure that supports AI data centers. Its steel is also essential for automotive, construction, and industrial applications.
| Market Cap | — |
| Revenue (TTM) | $19.2B |
| Revenue Growth | +4.0% |
| EBITDA Margin (TTM) | 2.4% |
| Net Debt | $7.6B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Trade enforcement (Section 232, melted-and-poured mandates) has cut steel imports to 2009 lows, supporting domestic pricing.
- The terminated slab contract eliminates a ~$500M annual EBITDA drag and shifts mix to higher-margin finished steel.
- Automotive shipments hit a near-two-year high in Q1 2026, and aluminum-to-steel substitution is gaining momentum.
- Order book is full, lead times have extended significantly, and Q2/Q3 pricing is building sequentially.
- Liquidity above $3B and nearest unsecured bond maturity in 2029 provide financial runway.
What We’re Watching
- Cost overhang: prior full-year $10/ton cost decline target was dropped; Q2 unit costs guided up $15/ton; H2 decline not assured.
- USW labor negotiations in coming months could alter cost structure or disrupt operations.
- Energy vulnerability: sole-source dependencies and weather-driven spikes (Q1 $80M hit) may recur.
- Trade policy risk: any softening of Section 232 or USMCA renegotiation could erode the protected pricing environment.
The thesis is strengthening on the demand and pricing side, with trade policy locked in, slab contract gone, and automotive demand recovering. However, cost predictability has deteriorated, and the dropped full-year cost guide raises uncertainty about margin expansion. The key question is whether H2 costs will normalise enough to realize the operating leverage management promises.
Earnings Beat
Revenue of $4,922M in Q1 FY2026 was up from $4,313M in Q4 FY2025. Gross margin remained negative at -1.7%, but improved sequentially. Adjusted EBITDA was $95M, a sharp sequential improvement, though burdened by an $80M energy cost spike; management estimates normalized EBITDA would have been roughly $175M. Shipments rose to 4.1M tons, with selling prices up $68/ton YoY.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $5.2B | $4.9B | $4.9B | +5.9% |
| Gross margin | 3.7% | -1.7% | -4.2% | +790bps |
| EBITDA | $276M | $52M | −$105M | −362.9% |
| EPS | $-0.25 | $-0.42 | $-0.97 | −73.8% |
| Shipments (M tons) | 4.1 | 3.8 | n/a | — |
Our order book is full and the automotive OEMs are booking more and more steel from Cliffs. Production schedules are tight and lead times have moved out.— Lourenco Goncalves, CEO, April 20, 2026
Management tone: Management's tone conveyed confidence in demand and pricing, with CEO Goncalves using superlatives like 'I have never seen so much momentum' on aluminum substitution. However, on costs, they were candid about the Q1 energy cost spike and dropped the full-year cost decline guidance, shifting to quarterly updates. POSCO urgency was openly downgraded, reflecting a stronger negotiating position.
Management Guidance
Full-year 2026 shipments guided to 16.5–17M tons, CapEx ~$700M. Q2 2026 ASP expected up ~$60/ton sequentially, unit costs up ~$15/ton. Management expects Q2 to be the best quarter in nearly two years and return to meaningful positive free cash flow; Q3 seen as even stronger. Prior full-year unit cost decline target of $10/ton was withdrawn; costs to be updated quarterly.
Trajectory
Revenue has been recovering from a trough, rising to $4,922M in Q1 FY2026 from $4,313M in Q4 FY2025, though still below the year-ago $5,092M in Q2 FY2024. Gross margin improved from -6.3% in Q4 FY2024 to -1.7% in Q1 FY2026, driven by higher volumes and pricing. The exit from the low-margin slab contract and automotive strength are lifting mix, but cost pressures from energy and scrap have slowed margin expansion. The sequential trend in EBITDA—from -$207M in Q4 FY2024 to $52M (adjusted $95M) in Q1 FY2026—signals an inflection, though full benefits are still ahead.
The Model
The model projects FY+1 revenue of $21,501M and EBITDA of $1,269M (5.9% margin), and FY+2 revenue of $22,120M with EBITDA of $1,615M (7.3% margin). The near-term forecast is anchored by the pricing recovery and volume gains from the slab contract exit, while FY+2 captures operating leverage as costs normalize and automotive demand continues to recover.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $18.6B | $21.5B | $22.1B |
| YoY Growth | — | +15.5% | +2.9% |
| EBITDA | −$223M | $1.3B | $1.6B |
| EBITDA Margin | -1.2% | 5.9% | 7.3% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.8% above analyst consensus.
Full-year 2026 shipments guided to 16.5–17M tons, CapEx ~$700M. Q2 2026 ASP expected up ~$60/ton sequentially, unit costs up ~$15/ton. Management expects Q2 to be the best quarter in nearly two years and return to meaningful positive free cash flow; Q3 seen as even stronger. Prior full-year unit cost decline target of $10/ton was withdrawn; costs to be updated quarterly.
What Could Go Right — and Wrong
- Automotive and aluminum substitution drive volumes beyond the 16.5–17M ton shipment range, pushing revenue above model.
- Cost normalization in H2 2026 and beyond leads to unit costs declining faster than expected, boosting margins.
- Canadian trade policy tightens, narrowing the Stelco price discount and lifting group EBITDA.
- POSCO transaction closes on accretive terms, adding cash and strategic asset value.
- Palantir AI deployment yields material cost efficiencies in production planning.
- Energy or raw material costs remain elevated, preventing H2 cost decline and eroding margins.
- Trade policy softens, allowing imports to rise and domestic steel prices to fall.
- Automotive production weakens, reversing the volume recovery and aluminum substitution tailwind.
- USW labor negotiations result in a costly contract or strike.
- Competitive EAF capacity additions from ArcelorMittal and others pressure pricing.
Looking Ahead
The next 12 months center on delivering the earnings inflection management has promised. The July Q2 print will test the guided ASP increase and cost containment. The Q3 'maximum operating leverage' quarter should validate whether margins are truly scaling. USW labor negotiations and any movement on a POSCO definitive agreement will shape the strategic outlook, while the Palantir AI rollout begins internally.
- July 23, 2026Q2 2026 earnings release — Tests ASP +$60/ton, cost +$15/ton, return to positive FCF.
- H2 2026USW labor negotiations — Outcome will set wage and flexibility terms; risk of strike.
- 2026 or slight laterPOSCO definitive agreement — MOU conversion would bring strategic cash and asset partnership.
- Q3 2026Q3 2026 earnings — Management expects maximum operating leverage; key margin signal.
- 2026–2028Palantir AI deployment — Three-year rollout for production planning; potential efficiency gains.
- 2028Butler Works GOES expansion — Expands sole U.S. source of grain-oriented electrical steel.
Financials
Annual Summary
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | $18.6B | $19.2B |
| Gross Margin | -4.5% | -0.7% |
| EBITDA | −$223M | −$126M |
| EBITDA Margin | -1.2% | 2.4% |
| Net Income | −$1.5B | −$876M |
| Free Cash Flow | −$1.0B | −$2.3B |
| Net Cash | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)-0.7%
- EBITDA Margin (TTM)2.4%
- Net Margin (TTM)-4.6%
- ROIC-4.1%
- FCF Conversion-183.9%
- SBC / Revenue0.0%
The Company
Cleveland-Cliffs is the largest flat-rolled steel producer in North America and the dominant domestic supplier to the automotive industry. It produces hot-rolled, cold-rolled, coated, stainless, and electrical steel (including grain-oriented electrical steel, GOES), as well as tubular products and stamped components. The company is the sole domestic producer of GOES, a critical material for transformer cores used in grid infrastructure. Its integrated operations span mining, pelletizing, steelmaking, and finishing, serving automotive, construction, industrial, and electrical markets. Cliffs' automotive relationships are reinforced by multi-year contracts and quality awards from GM and Toyota, while trade enforcement measures have created a protected domestic market.
The company operates an integrated network of steelmaking facilities in Indiana, Ohio, Ontario, and other locations, including the Burns Harbor, Cleveland, Indiana Harbor, and Middletown plants, plus Stelco's Canadian integrated mill. Its vertical integration includes self-sufficiency in iron ore from owned mines. Operations are supported by coal, coke, natural gas, and industrial gas contracts, though many sites are dependent on sole-source energy supply—a noted risk. The company is investing in modernization (Middletown Works blast furnace, Burns Harbor reline) and expanding its GOES capacity at Butler Works with DOE support, targeting 2028 completion.
Business Segments
Competitive Landscape
Cleveland-Cliffs operates in a concentrated domestic steel industry, competing with Nucor, Steel Dynamics, U.S. Steel, and ArcelorMittal. Trade enforcement has reduced import pressure to 2009 lows, creating a protected environment. The company differentiates through automotive qualifications, vertical integration, and sole domestic production of GOES. Competitor ArcelorMittal is ramping an EAF at Calvert and favors a tariff-free USMCA zone, creating policy divergence.
- NucorNamed in filings; major flat-rolled competitor.
- Steel DynamicsNamed in filings; competitor in flat-rolled and automotive.
- U.S. SteelNamed in filings; integrated competitor.
- ArcelorMittalFormer slab customer (contract terminated), now competitor; ramping Calvert EAF and potentially adding second; favors USMCA free-trade approach.
- POSCOGlobal competitor in steel; signed non-binding MOU with CLF for potential downstream partnership.
Supply Chain
Cleveland-Cliffs is vertically integrated from iron ore mining through steel finishing. It is largely self-sufficient in iron ore and relies on third parties for coal, coke, natural gas, and industrial gases, with many facilities dependent on sole-source energy supply.
More on CLF: Earnings recap