Cleveland-Cliffs Stock

Good morning, ladies and gentlemen. My name is Donna, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause results to differ materially are set forth in reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company website.

Today's conference call is also being broadcast at clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay.

The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning.

At this time, I would like to introduce Lourenco Goncalves, Chairman and Chief Executive Officer. Please go ahead.

Thank you, Donna, and good morning, everyone. Three months ago, we told you that the earnings recovery at Cleveland-Cliffs was becoming visible. Today, the recovery is firmly underway. Our Q3 adjusted EBITDA was $612 million, more than double the $286 million we generated in Q2. All 3 of our major profit drivers improved. Shipments increased. Selling prices rose in line with our expectations. And costs performed better than we had guided.

One thing that has become very clear over the past year is that a healthy domestic steel industry happens when trade laws are enforced and when foreign producers are no longer allowed to dump steel into our markets without consequences. Today, the United States has a much more rational trade environment, and the result is exactly what you would expect: stronger domestic production, higher utilization rates, more investment in steel facilities, and more confidence from both steel producers and steel consumers.

Every conversation about reshoring manufacturing, rebuilding infrastructure, expanding energy production, strengthening the electrical grid or supporting national defense starts with steel. At Cleveland-Cliffs, we mine iron ore, produce pellets and also produce HBI. And we produce steel from scratch, with a 25,000-person workforce that spans some of the most important industrial communities in the United States.

The trade policies of the Trump administration are helping create the conditions needed for companies like ours to continue investing in those communities and expanding domestic production. What the Trump administration has done on trade is not just good for Cleveland-Cliffs, it's good for America. As a consequence of the renaissance of manufacturing in the United States, we are currently selling steel under the best price environment in 3 years, and these are the prices we need to run a thriving business that grows employment, pays its workers well, reinvests in people and equipment, and protects our critical supply chains and national defense.

The most important and positive development for Cleveland-Cliffs since our last call has been the strength of our 2027 round of contract negotiations with our clients. The largest portion of our steel volume consists of tons sold to service centers and end users under annual fixed price or index-linked contracts. These agreements cover every segment of light flat-rolled steel consumption outside automotive.

All these contracts reset on January 1 of next year, and nearly all of these customers want more steel under contract in 2027 than in 2026. Suffice it to say that we have been very successful in renewing these contracts. In aggregate, the improvements should generate more than $1 billion of year-over-year EBITDA improvement, before even contemplating changes of the underlying pricing index. More importantly, our customers are not fleeing to imported steel. Actually, we are finally operating within the United States with a fair commercial structure that is critical to sustaining a healthy business allowing us to reinvest in our facilities and in our people.

The strong contract renewal environment and the good health of well-maintained equipment have created a compelling opportunity to maximize the value of our existing asset base. With that, we are postponing the Burns Harbor C blast furnace reline from mid-2027 to April 2028. Our President and Chief Financial Officer, Celso Goncalves, will be talking about that on his prepared remarks.

We have several other similar ongoing projects bigger and smaller, the most critical being the modernization of Middletown Works. This past quarter, we officially completed the rescoping of our $1 billion modernization project for Middletown. This revised project was commemorated with a visit by Vice President JD Vance to his hometown of Middletown, Ohio, and to our flagship automotive grade steel plant Middletown Works. The new scope entails our $1 billion investment, including $500 million of support from the Department of Energy, and will modernize one of the most important steelmaking facilities in the country while maintaining uninterrupted production throughout the construction period.

The project includes a state-of-the-art blast furnace rebuild, advanced material handling infrastructure, artificial intelligence enabled process controls, and a new cogeneration facility that will capture blast furnace gas and convert this off gas into electricity and steam for on-site use. Our work on this rescoped project has already begun, and we expect to be completely done in the first quarter of 2030.

Other notable projects on the agenda in the coming years that fit into our reinvestment master plan include the coke plant rebuild at Burns Harbor, a blast furnace [ stall ] rebuild at Stelco in Canada, and the grain-oriented electrical steel expansion GOES at Butler Works. Two weeks ago, we hosted the Secretary of Energy Chris Wright; the Assistant Secretary of Energy, Audrey Robertson; and the Undersecretary of Commerce, William Kimmitt, in Butler, Pennsylvania, where we discussed the importance of projects like this in supporting the manufacturing and energy dominance agenda of the Trump administration. They all recognize the importance of protection against unfair trade, and we are confident that they will not waver from this critical policy.

We don't believe and we don't anticipate that a surge of imports could be coming into the United States anytime soon. Imports remain approximately 35% to 40% below the level that existed before the implementation of Section 232 national security steel tariffs or 50% for the product and derivative products. Besides the tariff itself, transportation expense, long lead times, currency exposure and the risk that material will arrive into a different market than the one in which it was ordered are some of the problems could be faced by the brave that still try to import steel into the United States. Those factors create a meaningful risk premium.

None of our customers have revolted. And in fact, it's quite the opposite. Intelligent customers understand the operational cost of an unreliable supply chain. A lower quoted price offered by a trading company has little value if the product arrives late, fails qualification or cannot be replenished when production schedules change. We expect a strong trade enforcement to remain a lasting feature of the American steel market, because the underlying problem has not changed. Global steelmaking overcapacity remains enormous, and the state-subsidized production continues to seek an outlet.

Moving to Canada. The improvement in the hot-rolled market for Stelco that I discussed on last quarter's call has accelerated. It took the U.S. market roughly 12 months to see a $400 improvement to the spot price of hot-rolled coil. It took the Canadian market only 4 months to see a similar improvement. The significant improvement we have experienced in our hot-rolled business was a direct consequence of the TRQ system implemented by the Canadian government. The Canadian domestic market without protection is a lot more exposed than any other country in the world. And that's the reason we have been advising the Canadian government on what we believe needs to be done to finish what they have successfully started.

The galvanized steel business in Hamilton, Ontario, which represented less than 20% of our Stelco output, is still at risk. We met in person in Ottawa a number of times to explain the Fortress North America solution, supported by the entire Canadian steel industry, not only by Stelco, but we were not successful. Three months ago, in our Q2 investors conference call, we spoke about possible negative consequences of inaction, potentially putting at risk the jobs of Stelco workers in case the Canadian government continue to ignore our requests. Unfortunately, we were not heard.

Instead of a real solution, at the very last minute, the Canadian government offered us what they called financial support. But that's not what Stelco needs. What Stelco and Stelco workers really need is a market to sell galvanized steel, and government money cannot buy a market for galvanized steel. On the other hand, if the Canadian government use the power they already have and have the ability to only laterally exercise to block or severely reduce imports of galvanized steel into the Canadian market, Stelco can immediately bring back all the temporarily laid-off workers because that would immediately give us a market to sell and the ability to produce galvanized steel. One more time, the domestic market for galvanized steel in Canada is not big enough to accommodate 2 Canadian producers of galvanized steel, Stelco and ArcelorMittal Dofasco and also an avalanche of imports that have not been adequately reduced by the Canada's tariff rate quota system.

Cleveland-Cliffs invested CAD 3.4 billion less than 2 years ago to acquire Stelco, and Stelco was supposed to be an immediately accretive investment for Cleveland-Cliffs. A couple of months later, and for reasons clearly beyond our control or ability to predict, Stelco became a negative contributor to Cliffs' results, a situation that persisted for more than a year. Fast forward, we found a way to steer Stelco out of trouble and into a profitable path, all while waiting as long as possible to avoid the idling of the galvanized line, at a significant cost, because that business with insufficient volume was not profitable.

During the many months when Hamilton's galvanizing lines were unprofitable, we were aggressively advocating for stronger measures in Canada to bring about Fortress North America. Unfortunately, more restrictive quotas for galvanized steel never materialized, leading to these limited temporary layoffs at Stelco.

Notwithstanding all the attention that Stelco's limited layoffs have drawn, it's important to emphasize that Stelco is finally profitable. The enhanced TRQs implemented by the Canadian government in December 2025 and updated in June 2026 worked well for hot-rolled steel. But Stelco would be even more profitable if dumped galvanized steel imported into Canada would no longer be tolerated. The last piece of the puzzle to be addressed by the Canadian government is galvanized steel, and then we would be able to bring the workers back and restart production at the galvanizing department in Hamilton, Ontario.

A final point to address today. Back in the United States, our contract negotiations with the USW have extended past the original deadline, which is not uncommon. The negotiation remains professional respective and productive, and I personally have a great deal of admiration for the union leadership and the workforce they represent. Our objective remains the same as it has always been: reach an agreement that recognize our employees for their contributions while ensuring Cleveland-Cliffs remains strong, competitive and well positioned for the long-term success. I have no doubt we will get there and our American employees represented by the USW will be rewarded for the success we expect to have together in the coming years.

With that, I'll turn it over to the President and Chief Financial Officer of Cleveland-Cliffs, Celso Goncalves, for his remarks.

Thank you, and good morning, everyone. Three months ago, we guided to an expectation of $575 million of adjusted EBITDA for Q3 of 2026. And today, we reported $612 million. As we wrap up 2026, we expect to generate $715 million in Q4. And looking ahead to 2027, under prevailing market conditions, we could realistically reach an average of more than $1 billion of adjusted EBITDA per quarter in 2027.

Q3 was our strongest quarterly result in 3 years. The third quarter of this year showed what happens when price, volume, mix and cost all move in a favorable direction, as adjusted EBITDA increased by $326 million sequentially from Q2.

Steel shipments were 4.2 million net tons, compared with 4 million net tons in the second quarter. Third quarter 2026 automotive shipments were the highest since the third quarter of 2023. That occurred even though North American automotive production declined sequentially from the second quarter of this year. Shipment levels are expected to remain strong in Q4, albeit with the typical slower behavior seen around the holidays and more difficult cold weather periods.

Average net selling price during the quarter was $1,177 per ton, an increase of $53 per ton sequentially, as we benefited from rising market pricing in both the U.S. and Canada. We expect a similar level of improvement from Q3 to Q4 as we continue to see improvements in pricing and work through our backlogs. Index pricing in the U.S. has increased by roughly $40 per ton each month for most of this year, and we do not see any signals in our order book pointing to a slowdown of this pace. Customers are more focused on securing volume than price at the moment.

Unit cost performance in Q3 was excellent as costs declined by $17 per net ton during Q3, exceeding our previous guidance and serving as the primary driver of our adjusted EBITDA beat. As an integrated mill operator, the secret sauce of unit cost performance is running the mills at full utilization, and our strong order book has allowed us to do that. We have been running our mills harder than at any time in several years, and the maintenance outages scheduled for Q4 are much needed. We give all the credit to our operators for bringing these mills to their full potential and keeping pace with the strong order book throughout the year.

Even with the typical seasonality and maintenance outages common in all fourth quarters, we expect our Q4 adjusted EBITDA performance to exceed our Q3 performance by approximately $100 million, with an expectation of $715 million in adjusted EBITDA. That step change is shaping up to be substantially larger into Q1 of next year as pricing momentum continues and new sales contracts take effect.

Given the strong momentum going into 2027, we are postponing the Burns Harbor C blast furnace reline from mid-2027 to April 2028. The decision is a direct consequence of the effectiveness of the targeted maintenance and short-term capital we have already deployed to extend the current campaign of the C blast furnace. By safely pushing out the reline, we can capitalize on a highly favorable commercial environment, preserve valuable production capacity during a period of strong demand and pricing, and enhance cash generation while maintaining operational reliability. We will still be utilizing some 2027 CapEx toward the prework on this project, but the actual 90-day outage has been moved into 2028. Moving to Burns Harbor C furnace reline into 2028 also preserves approximately 500,000 tons of production that had not been included in our original 2027 plan.

We are also happy to report that our coal contract negotiations have concluded at rollover pricing for 2027. Coal and coke are the largest raw material components of our cost structure, so seeing this piece stable year-over-year gives us a lot more comfort in our outlook.

Looking at 2027 in total and using the forward curve as our pricing guide, we expect 2027 to be our best year since 2021, which remains the all-time record year for adjusted EBITDA at Cleveland-Cliffs. The slide deck that we released this morning shows the realistic path to more than $4 billion of adjusted EBITDA in 2027 under market conditions similar to those that we experienced this past quarter. That path includes the strength already visible in the second half of 2026, higher fixed price contract resets and lower discounts on index-linked agreements.

Last but not least, as Lourenco has already talked about today, Stelco should become a larger contributor to Cleveland-Cliffs consolidated results as backlogs convert to shipments. The result of all this will be very robust cash flow generation going forward, substantially greater than what we have showed in Q3. As previously foreshadowed, Q3 was working capital intensive, which temporarily limited cash inflows during the quarter. This will begin to change starting in Q4 as the working capital build will decline and the expected proceeds from property sales come in.

On that front, we closed 1 small asset sale in the third quarter, but most of the major properties we have for sale are all contracted to close in Q4. Some of these buyers have been granted extensions due to obstacles related to the local communities or power supply, but many of these situations have been sorted through over the past few weeks.

All of this cash will be used to delever our balance sheet. The hot-rolled market conditions in both the United States and now in Canada have granted us an incredible opportunity to pay down debt very quickly. We have become more confident in our ability to reduce leverage below our 2x -- 2.5x target by the middle of next year, and we have no intention of stopping at that point. Paying down debt will remain our #1 allocation of free cash flow even after we have reached that leverage target.

Strategically, we continue to be very comfortable as a stand-alone entity. We don't need technological help from anyone from the outside to take good care of our automotive customers or grain-oriented electrical steel clients, let alone other customers in less demanding sectors. We have made this point very clear in our still ongoing discussions with POSCO. I will refer you to the POSCO Holdings Form 6-K filed with the SEC on September 30, 2026, for their disclosures on our and their own update regarding the status of our partnership discussions.

We are entering 2027 with momentum that continues to build, not fade. We have a world-class workforce, irreplaceable blast furnaces and other unique assets, and a business that is positioned at the center of America's industrial future. If the United States wants to manufacture, build infrastructure, expand energy production and strengthen national security, it needs a strong domestic steel industry, and Cleveland-Cliffs remains uniquely positioned to help make that happen. We like where we stand today, we like where we're headed, and we remain focused on executing every day. Thank you for your continued support of Cleveland-Cliffs.

Donna, with that, please go ahead and open the line for questions.

[Operator Instructions] Today's first question is coming from Timna Tanners of Wells Fargo.

I wanted to get a little more color on CapEx for next year. Also the asset sale Q4, is that [ 370 ]? Is that the math? Just wanted to try to get a little more color on those points, please.

Timna, it's Celso. So Q2 CapEx was about $150 million, which run rate is lower than our guide of $700 million. CapEx will pick up going forward in the fourth quarter as we start to spend on some of these strategic projects for next year. So full year 2026 CapEx is still expected to be around $700 million, compared to, call it, $560 million last year, more normalized maintenance spend, the Butler project and spending in Q4, as I mentioned, related to some of these other projects.

As we look forward to next year, CapEx is expected to exceed just over $1 billion, driven by some of these new announced projects and prep for the Burns Harbor reline, which is now going to be in 2028. So overall, you can think of it as $700 million total in 2026, going to just north of $1 billion in 2027. But given where we are and given the EBITDA that we expect to generate looking into next year, that's more than manageable given our financial profile.

Okay. Fair. And if I could, one more. The market conditions continue to be pretty tight. It seems to be a challenge for our customers to get their hands on steel. What additional tonnage can you bring to market or would you contemplate bringing into market into 2027 to try to help catch up with orders?

Yes. We have to go product by product, Timna. For example, for grain-oriented electrical steel, we are adding 25% new production in our Butler Works plant in Butler, Pennsylvania. 25% is meaningful. And it's ongoing right now. So very soon, we're going to have the availability of more grain-oriented electrical steel to support the grid, which is extremely necessary.

If you talk about galvanized for exposed parts product that Cleveland-Cliffs is basically the major supplier, if not the only supplier that is reliable for the automotive industry, we are bringing the galvanizing line at Burns Harbor to produce gavanneal for exposed parts. We're bringing that online. In early 2027, we will be starting to do hot trials. And mid-2027, we are going to have more galvanneal for exposed parts. That's a product that the clients are asking for.

And let me see if I have any other -- oh, another good example. We have -- we still have a spare capacity for exposed electrogalvanized. But the problem is that for a few generations, the engineers at the automotive industry forgot how to use electrogalvanized for exposed parts. So we are kind of reintroducing electrogalvanized to the use of the auto OEMs. And we have surprisingly been very well received by the engineering department of our clients, and we are developing the use of electrogalvanized for exposed parts with a bunch of clients in the auto industry.

So product after product after product, Timna, we have plans to increase our production. We still have capacity to spare in certain situations. Remember, I still have the Dearborn blast furnace down. And we haven't brought Dearborn back for a simple reason is that the clients are not yet committing with the tonnage that I want them to commit. Once that tonnage is committed, we're going to be okay.

One more thing on that. We are changing the structure of our contracts. The minimum contract -- of tonnage contracted by clients right now, in the usual contracts with our individual customers, are now at a take-or-pay. So it's no longer a wishful thinking thing, it's a take-or-pay. The minimum is the minimum. You commit to the minimum. If you don't take, you're going to have to pay. And the clients are accepting. More than, I would say, 55% to 60% of clients already signed. And they are the ones -- they haven't signed yet because they are not presented with the contract. Now the problem is no longer price, the problem is having access to steel. We are giving that. We are changing the structure of contracts. Very soon, this will be the new norm in the industry. It started here with Cleveland-Cliffs, we're proud of that. I hope I answered your question.

Okay. And you have another 500,000 from not doing the reline as well, I guess? Is that incremental to 2026, or is that incremental to your prior 2027 estimates?

Yes, exactly, because we are doing prep work that doesn't mean bringing the furnace down in 2027. We're going to finalize the reline in 2028. So yes, we're going to have another half a -- good point, going to have another 0.5 million. We said that in the prepared remarks. Thanks for catching that. So we're going to have another 0.5 million tons in 2027 due to that.

Our next question is coming from Nick Giles of B. Riley Securities.

So my initial question was just when we look at the lower discounts on index-linked contracts and the fixed price resets, these negotiations, how much has already been concluded? Lourenco, I think I just heard you mention 55%, but I just want to clarify kind of where that stands or how much is already locked in.

Yes. Like I just said, it's more than half, and the ones that haven't -- we haven't had a single client, Nick, that said, no, I'm not going to sign that. I'm going to roll the dice. None. Zero. So when I say 55%, I'm trying to say more than 50%, a lot more than 50%. And we are still in -- today is October 19, so we have plenty of time to finish that. We just started. So by, I would say, by Thanksgiving, we'll have everything done. And I don't know how many will not take. So far, 0. So it looks like it will be the new way of doing business in the United States. So a much more mature way of doing business in the United States, we are very happy with that. And the clients are too.

That's good to hear. Thanks for clarifying, Lourenco. And then maybe just a question for Celso on the 4Q guide. Kind of what's underwritten there on the cost side and ASP side, respectively? And then on the 2027 bridge, when we look at the cost impact of $250 million, could you just kind of walk us through what's embedded there, whether there's any kind of volume benefit that's offsetting the inflation? Appreciate it.

Yes. Sure, Nick. Just to summarize on the cost side for this quarter that we just reported, we were able to bring down cost per ton by $17 a ton versus our guide of $10 a ton. And that was driven by higher production volumes, were a big driver of that cost outperformance. As we look ahead to Q4, costs are expected to increase slightly, and that's driven by repair and maintenance schedules, a little bit of higher energy costs, higher alloy costs, elevated diesel prices and things like that. So that's what's driving a little bit of a cost increase in Q4.

As it relates to ASPs, as you mentioned, in Q3, we brought ASPs up by $53 a ton versus our guide of $55, so we're kind of right in line. And as we look forward to Q4, these are expected to increase by a similar amount as it did in Q3, call it, $45 to $55 a ton, and all factors that contributed to the increase in Q3 are continuing into Q4. The monthlies, the quarterlies and the spot pricing are all improving.

The next question is coming from Carlos Alba of Morgan Stanley.

So on the cash flow generation, maybe just to see if you can provide just a little bit more color as to what you're expecting on working capital to close out the year. You mentioned that you expect cash flow generation. It's still early on, but maybe an indication of a range of magnitude that we can see there. And then just to confirm then if you expect to have the $500 million on asset sales, also the cash coming in, in the fourth quarter, on top of what you saw and reported in the cash statement for the third quarter.

Yes. Carlos, yes, I think working capital will be likely neutral in Q4, is the best way to think about it. In Q3, we had a build of $160 million in working capital, and that was largely driven by $170 million increase in inventory, $115 million increase in AR, which was offset by $135 million increase in payables. But as we look forward to Q4, that should neutralize and working capital will be neutral for the next quarter.

As it relates to asset sales, everything is contracted and expected to close here in Q4. Obviously, there's -- anything can happen, but that's what we expect right now. There are situations where some extensions have been needed, power supply and things like that are complicated. But as of right now, we still expect to close all those in Q4.

Great. And then if I could squeeze one more. So your balance sheet has been improving and will continue to improve as you have laid out. But would you consider -- under what circumstances would you consider maybe being -- strengthening your balance sheet and reducing your leverage beyond the 2.5x perhaps as the stock recovers, and we've seen a strong performance of premarket, an equity raise? Is that out of the question at this time based on the strong outlook for next year and the cash coming in from the asset sales?

Yes. Look, we don't think we need to given the outlook we have right now, as we're looking forward to north of $4 billion of EBITDA next year, and we've laid out pretty clearly how much free cash flow generation that would result in. I would much prefer to use cash from operations to pay down debt, and that's our primary goal. And the 2.5x is just the leverage target that we have clear visibility into right now.

Obviously, as things progress throughout next year, we should be able to well exceed that expectation, hopefully. So it's not a target that we're going to stop at. I think I've been pretty clear over the years in terms of my priority to reduce down debt. And we're always looking at the balance sheet, looking for opportunities to do that. So the ABL will be the primary target. We'll pay that off with cash from operations, and then we'll look to continue to drive down the bonds as well. So that's how we plan to do it with cash from operations.

Yes. In sum, Carlos, we are not going to issue stock. We don't need to, full stop.

The next question is coming from Nick Cash of Goldman Sachs.

So automotive volumes have been strong this year and again this quarter. And in general, the market is generally tight -- there's limited tons available and pricing is also extremely favorable. Just wondering, how are you all thinking about what specifically still needs to happen before Dearborn becomes economic to restart?

Yes. Look, we -- first of all, no OEM is not being taken care of. That's the very first thing. You said it's extremely tight. Not really. Not really. Because until General Motors brings the Chevy truck from production in South Korea to production in the United States, we don't need Dearborn, for example. That's the bestselling vehicle that they have and it carries the same ton of steel that any other car that we produce here on average that we produce here in the United States, and it's being produced in South Korea. That's a slap in the face of the United States. That car needs to be brought back to the United States. I have been talking with General Motors about that. So no need for the a until that happens.

The other thing that's really an annoying thing is the F-150 of Ford being an aluminum skin car. I say aluminum skin car because everything else in that car is already steel, and we are the suppliers of that steel. But so far, only the fenders are steel. And the reason why the offenders are steel is because the producer of aluminum set themselves on fire 3 times in 1 month, showing how weak that supply chain is. And then when push comes to shove, they come to Cliffs to build them out, and we did. And we did with engineering, we did showing that we can stamp aluminum, we can stamp steel in dies that were used to stamp aluminum. So we need to bring that car to steel. And I hope that the buyers of trucks understand an aluminum vehicle is not a steel vehicle. And anyway, and then we can bring Dearborn back. So the clients are the ones that will dictate when Dearborn will come back, not me.

No, that's extremely helpful. And just one more quick one. Again, on the price deck, you increased the $500 million opportunity from repricing to closer to $850 million. Can you just walk us through or provide a little bit more color on what exactly changed in terms of how much reflects higher-than-expected pricing, additional tonnage and how many tons are actually being repriced in that number?

Well, everything is going very well in our renegotiation. Last quarter, we were conservative, but now we are more realistic because we have deals done. I'm not going to go into specifics, but that's pretty much what's happening.

Our next question is coming from Samuel McKinney of KeyBanc Capital Markets.

I'm going to stick on the contract theme. With 70-plus percent of the mix on fixed or index-linked contracts, do you guys see that mix evolving into next year, where we hear from a lot of buyers about the mills attempting to reduce their contract exposure to take advantage of this rich spot market?

I hope you heard in the prepared remarks that we are doing well with the renewals. That's number one. Number two, I already informed as we are doing this dialogue with you guys in this call, I let you guys know that now the minimum tonnage contracted is a take-or-pay for Cleveland-Cliffs. And for the -- we are not by any stretch forcing them to take the existing minimums. If they want to go to a lower minimum in order to be in a more comfortable situation from the take-or-pay standpoint, we are fine with that. On the other hand, the lower minimum is now the lower minimum. So if we need to bring contract tonnage to a minimum, that's the new minimum.

So what's happened is that, more than the opposite, clients are asking to raise their minimums. Because at this very moment, Samuel, the biggest point semis to have steel, not to negotiate a price. So fixed prices are gone. Everybody is going to index, and going to index with a minor or no discount because they all believe, not all, but a good number, let's put it like this, of clients believe that price have peaked. So being on the discount to help them going forward. On the other hand, I believe that steel prices are not at peak. So I also have a good view on keep contracts on index price.

So we're going all index and with low discounts -- lower discounts to freight, things like that. So no discounts to freight, passing along to the clients our costs. They are accepting that too. And I think we're going to be much more mature as we eliminate the cancer of imports from this market. We're in a much more healthy environment in which the clients can plan for the future, we can invest, we can hire people. And that's what's the most important thing of bringing manufacturing back to the United States.

So kudos to President Trump, Secretary Howard Lutnick and others that are implementing -- USTR and especially to Jamieson Greer, all the officials that finally heard what this industry has been claiming for several decades, and now we are doing and now the United States is the third largest producer of steel in the world, ahead of Japan. Rightfully so, we are a country that is growing, they are a country that's shrinking. So we are in the right spot right now.

All right. Great. And then on the last call, you guys outlined the third quarter volume increase of about 300,000 tons, and volumes increased only about 125,000 tons. Celso, you touched on third quarter auto production earlier, but any more details you guys can provide on the factors over the course of the quarter that prevented you from achieving that outlook and if they've subsided for the fourth quarter?

Yes. The main reason is the fact that our biggest business individually is automotive. And automotive has been reshoring, that's a good thing. But they are reshoring in a way that is not really, let's call, as organized as we would like to see. They have their own problems. And they're just in time doesn't work as good as it looks like or sounds like when you say just in time. So we need to sometimes reschedule our own production in order to make sure that they are in steel. But not because of us, sometimes it is, but not -- more normal than not, we have to do that because of them. And we do that because they are the clients. And we're working individually with each one of the clients, the auto OEMs, make sure that they get their own thing better organized for us to be better organized as well.

So the contract renewals of the automotive clients, the multiyear contract that we gave to them, are coming soon. The first one will be related to a January 1 expiration. And now they know that there are take-or-pays for minimums for other clients, and we're going to evolve to that with them. We are the largest supplier of automotive steel by a lot. We continue to grow our participation at will with automotive. And we are going to have this introduced with the automotive clients. And if they don't want, that's fine too. We'll see.

Our next question is coming from Albert Realini of Jefferies.

Congrats on the impressive quarter. Yes. I think last year, you guys have talked about the expiration of the slab contract and maybe a high-level estimate that could increase EBITDA by maybe $500 million. I just wanted to ask, is there more to go with that? I saw in the sales volumes, there didn't look like there were a slab or other products there. So is there more, I guess, uplift remaining in the fourth quarter from that? Or have you guys kind of reached that run rate, which I assume is higher now just based on the pricing environment?

Yes. Good point. I appreciate the question, Albert, because you're absolutely right, the benefit of not selling slabs is showing in our numbers. Remember, when I sold -- I'm sorry, when I sold -- when I bought ArcelorMittal U.S.A. from ArcelorMittal, one of the conditions that I had to agree with, otherwise that you would not go through, was to supply ArcelorMittal Calvert with our slab. And that deal was a 5-year deal. We counted the days until the day of the expiration, the fifth anniversary and we did not renew, and there was a very positive benefit. And I'm sure that ArcelorMittal is doing extremely well with their new supplier of steel slabs. No, that was actually a joke. They are not. But I don't care. And we are good. We are happy with that.

The next question is coming from Bill Peterson of JPMorgan Chase.

Echoing nice job in the quarterly execution. Just trying to, I guess, tie in some of the questions earlier on shipment potential for next year, and maybe leaving Dearborn aside. I guess, how should we think about your shipment growth quantitatively maybe versus market growth? Does this assume any sort of kind of share gain? Or is the market -- just kind of grow in line with market, just at a high level?

First of all, everything that the Trump administration has implemented in terms of reshoring manufacturing is really happening. So the demand is growing. The overall number is growing. That's number one.

Number two, imported steel that was always, always a relevant item of the mix of supply is no longer there. You don't see the important role played by imported steel in this market being played going forward. For several reasons, we have already discussed. So now it's about the domestic supply.

Third thing is that even though there are a lot of announcements for new plants and things like that, these things are years ahead if they really materialize. And I'm not just talking about Iowa or any other plants that were announced. I'm talking about announcement that even announcements that haven't happened yet. Because when you see an environment like what we have right now with reshoring manufacturing into the United States, I really believe that other announcements will come. But when push comes to shove, clients need reliability. Clients need people that can really supply steel. And they know where they can get steel and you know where they can get announcements of future investments in [ $50 billion ] here, another $13 billion in CapEx that never materialized from another one, level that, but when they need steel, they know where to come. So that's what's happening right now. I hope I'm helping, not complicating, Bill, but that's how I see it.

Okay. It sounds like it's a constructive backdrop. I guess my second question, and you've pretty much defined clearly what's going on in Canada. Obviously, HRC is now nearly on par. I'm just curious, what do the value-added spreads, I guess, look like between Canada and the U.S., just to help quantify what you were saying earlier?

Yes. Look, Canada caught up very quickly when the current administration implemented the TRQs and -- in the first place, and then fine-tuned a little bit to make it really work. That's what happened between December of 2025 and June of 2026. For the hot-rolled business, it worked extremely well.

As far as the galvanized business, didn't. Because between ourselves, ArcelorMittal -- ourselves meaning Stelco, ArcelorMittal Dofasco, an incredible amount of imported galvanized steel coming through the border. The domestic market in Canada simply cannot accommodate. And when the Prime Minister goes on a world trip and say, "Come to Canada, we're open for business," they're basically inviting a new imports into the market and people here outside of Canada, and they said present and they sent this deal there. So what Prime Minister Mark Carney did with this world trip and bringing electric vehicles to the country, just 49,000 tons of virus, called Chinese electric vehicles, he was basically snatching defeat out of the joys of victory. And the punishment was not on companies like Stelco or even Cleveland-Cliffs, the punishment was on Canadian workers. So when things like that happen, consequence exists.

But I always believe that cold minds will prevail and there are more intelligent people than stupid people in any place in the world. So we're going to be okay in Canada. I don't know if your question was exactly that, but I think that's the only message about Canada that's important. All the rest is just your spreadsheet, Bill.

Thank you. This brings us to the end of today's question-and-answer session and today's conference call. We would like to thank you for your participation and interest in Cleveland-Cliffs. You may disconnect your lines at this time or log off the webcast, and enjoy the rest of your day.

Good morning, ladies and gentlemen. My name is Darryl, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs' Second Quarter 2026 Earnings Conference Call. [Operator Instructions] The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995.

Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that can cause actual results to differ materially. Important factors that can cause results to differ materially are set forth in reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website.

Today's conference call is also available and being broadcast at clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results, excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Lourenco Goncalves, Chairman and Chief Executive Officer.

Thank you, Darryl, and good morning to everyone. After several quarters of talking about the future earnings power of this company, we can finally point to tangible evidence that the progression we have been forecasting is now reality. During the second quarter, we returned to positive free cash flow and tripled our adjusted EBITDA from the first quarter. While the second quarter represents meaningful progress, it still understates where this company is headed over the coming quarters.

Q2 maintenance outages and our lagged contracts still did not allow us to demonstrate the full capability of our asset base. That will be more visible in Q3, in which we are expecting to more than double our Q2 EBITDA. Due to our health backlog and improved pricing, the second half of 2026 will look substantially better than the first half of the year. With our third quarter adjusted EBITDA guidance of $575 million, we have a situation where higher prices, lower costs and higher shipping volumes will all be converging at once. Weather-related impacts are behind us. Finishing lines are full and pricing remains strong.

Better yet, at the current curve for steel, we expect the fourth quarter to further outperform the third quarter in adjusted EBITDA with even more improvements to come in 2027. When profits were below our standard at this time last year, I laid out 3 key areas of improvement that would bring us back to a respectable level. Automotive volume recovered, footprint optimization and the expiration of the uneconomic slab supply contract we had in place with ArcelorMittal Calvert. These 3 factors have all now materialized. And with stronger pricing, the improvements we see are even better than previously forecasted.

Automotive demand deserves a special mention. Cliffs continues to be the supplier of choice for the automotive sector in the United States, illustrated by the fact that we have received the top supplier award from both Toyota and General Motors so far this year. During the quarter, our shipments of steel to our automotive clients were the highest in the last 2 years. Our finishing lines, which run at suboptimal utilization levels for the last couple of years, are now back to running at a healthy level of utilization with a favorable impact on our costs. Thanks to our multiyear contracting strategy, the ongoing reshoring of automotive production into the United States and major supply chain disruption suffered by competitors, our automotive coating volumes are back to the strong levels we saw back in 2023.

This improving situation in both steel and automotive demand can be attributed to the long overdue trade policies we now have in place in the United States. Section 232 has been the single most effective industrial policy implemented in our country in a generation. We applaud President Trump, Secretary Howard Lutnick and USTR ambassador, Jamieson Greer for their conviction in these policies. The results are visible. Manufacturing investment is accelerating. Domestic steel utilization is improving and capital is being allocated to U.S.-based production rather than offshore production.

The reshoring movement that's now occurring throughout American manufacturing simply would not be happening at its current scale without Section 232 and the enforced mechanisms that support it. We have long argued that America cannot maintain a strong manufacturing base without maintaining a strong steel industry. Today, that argument is no longer theoretical and has been validated by real-world investment decisions made by some of the largest companies in the world into automotive production, electrical infrastructure and defense-related applications, among several other sectors.

All of those investments require steel, and Cleveland-Cliffs is uniquely positioned to meet that demand given the breadth of our product portfolio and our domestic footprint. Besides their great success in combating illegal trade of dumped steel and steel derivatives into the United States, the U.S. government has been instrumental in making our industry more energy efficient via grants from the Department of Energy. Our Butler Works induction reheat furnace upgrade continues to progress well and upon completion in 2028, will provide us with the ability to supply more tons of the high-end grain-oriented electrical steels our country needs.

In addition, we have made major progress on the rescoping of the Middletown project in compliance with the Trump administration's energy dominance goals. The Middletown blast furnace is due for a reline by 2030, and this DOE grant will allow us to go further in optimizing the furnace and maximizing energy efficiency by capturing and using blast furnace gas to generate electricity on site. We expect to make a public announcement in the next month or so.

Furthermore, as discussions surrounding USMCA continue, every outcome that has been publicly discussed would be a positive outcome for domestic steel producers. Whether the final result includes stronger melt and pour requirements, tighter enforcement of rules of origin, increased verification requirements, additional scrutiny of transshipped material or stronger content requirements for automotive production, each one of those outcomes favors steel produced in North America by companies with meaningful domestic operations.

We are uniquely positioned because we are here in the United States of America, and we are miners, pellet producers, iron makers, steel makers and downstream manufacturers. Therefore, every policy that emphasize domestic content, domestic production and domestic manufacturing directly benefits Cleveland-Cliffs. A similar trade dynamics applies to Canada. We were pleased to see the extension of the Canadian tariff rate quota system through June of 2027. Canada has struggled with many of the same challenges faced by the United States prior to President Trump.

The world has way too much steelmaking capacity and certain countries continue to export that excess capacity at prices disconnected from economic reality. Our Stelco results have improved and their contribution to Cleveland-Cliffs is part of our second half improved guidance. While we have seen improvements on the hot-rolled side, with the vast majority of what we do in Canada, on the finishing side, Stelco is still lagging. Without further measures to protect fair trade in Canada, the future competitiveness of our galvanizing lines in Hamilton is at risk.

We continue to defend our point of view with the Canadian government officials, asking them to do what is right to protect the steel industry in Canada, just as our American government has done here in the United States. Extending the TRQ system through June of 2027 is an important step toward protecting Canadian jobs and creating a healthier North American steel market, but it's not sufficient. If Canada really wants to have a domestic steel industry, more needs to be done. One other matter to highlight in today's call is our Cleveland-Cliffs safety record, including Stelco.

I don't talk publicly about safety very often, but we have worked very diligently since the 2 acquisitions of AK Steel and ArcelorMittal back in 2020 to implement in our steel plants the same level of Cleveland-Cliff safety standards we put in place in our mines since we took office in 2014. In fact, our total recordable injury rate for the last 3 years has been best-in-class. Safety is also good business practice. Because of our sustained safety performance over multiple years, we are now seeing meaningful reduction in workers' compensation expense and other related costs.

One important item to mention today, we have officially kicked off negotiations with the United Steel Workers Union to renew our collective bargain agreement. And I'm pleased to say that the process is off to a constructive and productive start. We are approaching these negotiations like we always do with a shared commitment to maintaining a competitive and sustainable business while continuing to create opportunities for our employees. Based on the dialogue to date, we are confident that we can reach an agreement that strengthens our partnership and delivers meaningful benefit for both Cliffs and the USW.

Before turning it over, I would like to recognize Celso's appointment to our Board of Directors as President and CFO that was announced this morning. This appointment formally reflects the role that he has already been playing in driving our strategy and delivering important financial accomplishments over the past decade. Celso has been an indispensable partner to me and a trusted leader across our organization, and this promotion better reflects his role. It also marks the early stages of a transition in leadership. I'm not going anywhere anytime soon, and I plan to lead this company for several more years with Celso as my right hand. With that introduction, I will turn it over to him.

Thank you, and good morning, everyone. First, I'm grateful for the opportunity and the responsibility that the Board has given to me. I'm excited about where we sit today, especially considering the amount of improvement we have seen over the last year, combined with our promising outlook. There's a lot more that we can improve upon, and I'm confident that we can make it happen as the need for integrated steelmaking in North America is undeniable.

Turning to our quarterly results. Our adjusted EBITDA in the second quarter was $286 million, our best quarter in 2 years. Second quarter shipments were just over 4 million tons, down sequentially from the previous quarter due to the maintenance outages we underwent during the quarter as well as improved automotive demand, which comes with longer lead times. We expect to see steel shipment volumes above 4.3 million tons in the third quarter as the order book remains strong and backlogs are extended.

Pricing also continued its steady climb upward. Our average selling price increased by $76 per ton as pricing lags started to materialize, and we sold a richer product mix, thanks to our automotive heavy order book. This climb will continue into Q3 as we have visibility on pricing on nearly every ton we will ship in the next quarter. Based on this, we expect our average price to increase another $55 per ton in Q3. HRC spot pricing has, of course, played the largest role in our improvements, but the trajectory of the cold-rolled coil price, which many of our contracts are linked to, has even further outpaced hot-rolled coil prices over the past several months. This is another factor illustrating the importance of trade policy as it has driven our pricing realizations to higher than originally expected levels.

As for unit costs, as previously guided, the inventory lag effect from last quarter and our maintenance outages pushed costs up quarter-over-quarter. But with that behind us, we should see a $10 per ton reduction in costs into Q3. After 2 years of negative free cash flow, we finally flipped back to positive in the second quarter. We expect this trend to continue going forward. On top of that, we are now under contract on all of our major property sales with earnest money in our control in all cases. The bulk of the $400 million proceeds from our property sales are expected to come in the second half of this year.

With volume, price and cost all moving in the right direction into next quarter, we felt it prudent to provide an adjusted EBITDA guide with our results this time because of the magnitude of the change quarter-over-quarter. We expect adjusted EBITDA of approximately $575 million in the third quarter, which would be our strongest quarter in 3 years. With where the curve for HRC stands today, we would expect even further improvement on that figure in the fourth quarter, even with the typical seasonal slowdown we usually see around the holidays.

Beyond this, if you ran out the futures curve over the next year, we would expect to hit our leverage target of sub 2.5x by this time next year as the cash flows generated from both ongoing profit and asset sales will be used to delever over that time frame. These are not based on any extraordinary assumptions as we see achievable opportunities going into 2027 beyond just commodity pricing. We'll have an opportunity in the coming months to reset a large portion of our fixed price contracts substantially higher, which we estimate will represent a $500 million EBITDA improvement year-over-year.

We also see a major improvement coming from Stelco based on where its order book is today as well as further cost reduction opportunities from AI-based initiatives currently being implemented with our partner, Palantir. On the strategic front, one thing that has become increasingly apparent through the multiple processes that we've run is that prospective counterparties approach discussions with the assumption that Cleveland-Cliffs was under pressure to transact. This includes our processes for HBI and FPT as well as our ongoing dialogue with POSCO.

We went into these processes with the backdrop of foreign companies paying enticing multiples for U.S. industrial assets. These were opportunistic ventures aimed at unlocking value at higher multiples than where we trade at. We understand the replacement costs associated with these operations, and we are well aware that these assets -- what these assets contribute to Cleveland-Cliffs. So far, the offers that we have received related to these processes have fallen short of our value threshold. On top of that, our HBI has become substantially more valuable for us with the strong order book that we have in place. HBI used in blast furnaces juices our iron-making capabilities where we are constrained, and we have been able to push more volume through our mills as a result. This will be evident in our third quarter shipping volumes.

Regarding POSCO specifically, discussions still remain friendly and ongoing, but we don't have a deadline on our side. We continue to have constructive dialogue and believe that there are strategic benefits that could be realized, but valuation and structure are important, and we're not desperate to do anything unless these 2 factors are met by POSCO and acceptable to us. The United States is the best market in the world, and it's not cheap to play in our sandbox.

The story today is very simple. Cleveland-Cliffs is entering the strongest earnings environment that we have seen in years, and we are doing so with a better operating footprint in the domestic steel market that remains supported by trade enforcement and manufacturing investment. There are still low-hanging fruit opportunities such as fixed price contract resets that can amplify our position even further, and we are anxious to pursue this in the coming months. The factors that have delayed our earnings recovery are largely behind us, while the factors that support future earnings remain firmly in place. With that, let's open up the line for questions.

[Operator Instructions] Our first questions come from the line of Carlos De Alba with Morgan Stanley.

I wonder if you can maybe give us a little bit more color on the resetting of the non-auto fixed price contracts. Any specific products in which this apply? And should that come on January 1 or it will be throughout the year? And if you could maybe also share any light on the auto contracts for next year? Any expected reset higher or flat, that will be quite useful.

Carlos, regarding the resetting of the nonautomotive contract, it's a process that starts in earnest in the second half of the of this year. And it usually goes through November, early December will be done for the year. You know the numbers. You know the current scenario on pricing and the futures curve and everything. So we negotiated last year contracts on the backdrop of a much lower price environment. So without giving any numbers on that, the expectation that these contracts were set for much higher prices are just a foregone conclusion. So no surprise on that.

Regarding automotive, we -- remember that we are in an environment right now that it's clear after couple of years of changes in the marketplace and the dynamics of the marketplace, including ownership of more direct competitors that we are the real deal in supplying automotive clients. And the clients know that, recognize that. And at this time around, there's no more escape valves, thanks to the beautiful enforcement of trade policies by the Trump administration. There is no more escape valves in Mexico for transship the steel. There's no more Canada playing at convenience as part of the United States when it's good for Canada, but never when it's good for the United States. So all these things changed.

Now or you are here in the United States or you are out. And if you're here in the United States, you want to produce cars in the United States, they need to buy from Cleveland-Cliffs. There's no more conversation about mini mills producing automotive steel or going into producing all kinds of automotive steel. This is behind us. There's no more conversations that the other integrated player is at our level. They are not. We are getting market share from them at will. And if we want to take all their business, we take all their business. So we are in good shape. And we are going to play for higher prices. We're going to be more selective, and we are going to reset the numbers higher. That's the bottom line.

Perfect -- and just on cost, so we saw the guidance for the third quarter. Any early comments on the fourth quarter expectation for cost? And should we maybe bake in another quarter-on-quarter reduction in the fourth quarter? Or is it going to be more flattish? And any comment would be great.

Yes, we expect further improvements. Our momentum is good, and we believe that with higher levels of production and more stable and more, I would say, more optimized schedules at the mills, thanks to our work with Palantir, we are going to continue to bring the cost down.

Our next questions come from the line of Samuel McKinney with KeyBanc Capital Markets.

You were very clear last quarter and you reiterated today that automotive OEMs booking more from Cliffs and those production schedules are tight. Of the 300,000 ton shipment uplift you're looking for in the third quarter, how much of that is from the improved automotive market?

I would say half because that's pretty much what we do every quarter, half automotive, half of the nonautomotive as far as light flat-rolled carbon steel.

Okay. And the positive -- maybe for Celso, the positive free cash flow this quarter was more than accounted for by the increase in payables at the end of the second quarter versus the end of the first quarter. Can you provide us some more detail around what drove that spike in payables?

Yes. Sam, the payables were largely driven by things like raw materials going up, additional maintenance work and things like that.

Our next questions come from the line of Nick Cash with Goldman Sachs.

Congratulations, Celso. I just wanted to touch on Stelco in Canada for a second. You mentioned the $500 million potential uplift opportunity here from pricing improvement cost and volumes. And you mentioned, I think, on the last call that Canadian selling price was at a 40% discount to U.S. price. Based on numbers I've seen recently, it looks like that gap has closed and Canadian prices have moved up actually quite a bit. Is there any chance you'd be able to provide some color on what you're seeing in Canadian spot pricing? And I guess, how much of the $500 million potential uplift is based on today's pricing? Or -- and I guess, the split between pricing and volumes to get that $500 million?

Volume-wise, Nick, we are fine. And we're not in a much better spot volume-wise. We're maxed out at Stelco. We are producing what we have to produce. What happened over there is that the pricing gap has closed. The Canadian government made some moves, insufficient moves, but moves in the right direction. So things are getting better, pricing-wise over there, particularly for hot-rolled steel. We haven't seen yet the same type of impact with the galvanized steel over there. That said, we are very comfortable producing hot band. And we believe that making more hot band to supply the Canadian market is the way to go.

If the Canadian market does not understand that galvanized continues to be under pressure and dumped galvanized is still destroying the market. I have used all the arguments I could have used to explain that to them. And look, we are going to do what's good for Cliffs and for the Cliffs shareholders. So if I need to make any changes in the Canadian footprint, it will be all affecting galvanized and producing more hot rolled. So -- and that will have a consequence for employment in Canada, but we will have a positive financial impact on Stelco and Cleveland-Cliffs. But that's not something that we have decided yet. I'm still watching to see what's going to happen. Our guidance is based on what we are booking out in September.

Our next questions come from the line of Lawson Winder with Bank of America Securities.

Nice to hear from you both. And then Celso, congratulations on the promotion. If I could ask on the guidance, just looking further out, if I'm understanding or inferring from some comments you made, Celso, the Q3 '26 and 2027 guidance, is it basically assuming the U.S. HRC forward curve for pricing? And then would that include for the fixed price contract reset? And then just to follow up on that, what assumptions are baked in to unit cost for improvements in Q4 and 2027?

Yes. Lawson, thanks for the comments. Yes, we felt it prudent to give a more detailed guide this time just given the magnitude of the improvements that we see, but there's nothing crazy being baked in there. Pricing-wise, it's largely just the curve. And then we're assuming the positive benefits that we see from the fixed price contract renewals and things like that. So it's all very realistic, and we have visibility into it. We know the cost trajectory. We know where pricing is expected to be. And then we have other assumptions like coal, energy and other costs effectively consistent. We have no reason to think otherwise at this point. So we feel pretty good about the guide.

Okay. Yes, that's very helpful. If I could ask then a follow-up on the Q2 results. With free cash flow, there was a real positive working capital benefit, particularly on accounts payable. Could you provide a little color on what that benefit was about and whether that could be maintained going forward? Or would you expect any reversals going forward?

Yes. So as it relates to working capital, Q2 was a release of around $55 million, and that was driven by a reduction in inventory and a slight build in AP offset by a little bit of AR. I think we talked a little bit about, as we mentioned on the reasons that -- why AP went up. And then going forward, working capital for Q3 is likely going to be a slight build as pricing continues to increase. It's a little too early to tell how significant of a build it could be, but that's what we see going forward into Q3.

Our next questions come from the line of Bill Peterson with JPMorgan.

Also congrats, Celso. I appreciate all the color thus far on the call. I had a question on the U.S. auto market and realizing you're potentially gaining share and so forth. But considering the announcements from some of your customers to reshore, how should we think about your market opportunity in terms of unit volumes in 2027, 2028 and what that means for maybe uplift in terms of your output to capture those -- the increased market size?

Yes. We have -- Bill, we have the capacity. We have the technology and we have the respect of every single client we have. Keep in mind, we got this year, once again, the Supplier of the Year award from General Motors, the only steel producer getting this award this year here in the United States. And we also got the international company, Toyota, giving us the same award. I forgot the exact name of the award, but it's the top award for a steel company in a given country can get. So that's the recognition we have from these folks.

So at this point, there is no more conversation who is who. We are #1 [ period ], full stop. We know how to supply automotive. We don't need the help from anyone to help us get better. We are good enough by ourselves. We have the best team to handle the automotive business in the United States under the leadership of Dan Gordon. Between Dan Gordon, Mike Hrosik and myself, everybody knows who is who in the automotive business here in the United States. That said, we still have one blast furnace in spare at the Dearborn, Michigan. And I don't need to explain. Dearborn, Michigan inside the Ford Rouge complex, we are really able to produce automotive steels over there.

So we have more capacity to supply automotive. The Trump administration knows that. I shared our potential with the Secretary of Commerce, Howard Lutnick. We support the Trump administration moves toward reshoring manufacturing. They are doing the business of the American people, and we're right behind to make sure that as every single move that they make will be backed by Cleveland-Cliffs and we'll be there for them. That's how we work, and that's how we will continue to make money for the shareholders.

I appreciate that comment, Lorenzo. Maybe following up on the second part of Lawson's question, just to get a sense of the variables for cost in 2027. potentially, I'm thinking like increased utilization potentially. It sounds like raw materials are not expecting any headwinds. Are there any other inflationary costs to consider? And maybe on the Palantir side, you talked about some improvement this year. Do you have line of sight for any cost improvements from your work with them considering maybe the next 6 to 18 months? Any additional color would be helpful.

Yes. The very first thing is some changes in maintenance practices and moves toward higher utilization of our equipment, better and more efficient production planning. All these things that are going on inside the company right now. They are starting to bear fruit, and we will continue to see these things impact -- positively impacting our costs. We do have a reline at one of our blast furnaces in Burns Harbor and coming next year, and we're going to get some efficiency gains over there as well.

In a much smaller scale, but not less important, we are going to be producing more grain-oriented electrical steels as the -- it's a 25% increase on that plant specifically with the completion of our induction furnaces in the hot strip mill of Butler. So there's a few things that -- these are a few of the things that we're doing in order to continue to grow our throughput.

Our next questions come from the line of Nick Giles with B. Riley Securities.

My question was about capacity restarts and LG, you just mentioned Dearborn. So what else do you need to see, whether I assume primarily at Dearborn, but elsewhere to expand capacity? And then can you just remind us of the volume uplift that could come from any restarts and how you're thinking about capital intensity?

Yes. Look, that plant is a producer of automotive-grade steel. So the more automotive moves production to the United States, the more we are going to get closer to bring back Dearborn. The more they replace aluminum with steel, which they are doing in a very consistent way since the competition set themselves on fire and they did it again and then again in the last several months. The more they continue to do that, the closer we get there. And the more they believe that the Trump administration is not going to go back on anything that they are doing so far.

And there's absolutely no indication that would happen. I would go one step further. No matter who the next President of the United States will be, any Republican or even a Democrat, I don't see these things being undone. There's nobody that will come and say, "Oh, you know what, it's a good thing to import steel from China." Let's go ahead and let China go back to their control over the market. President Trump pushed them back, and that was in the first mandate. President Biden came and did not change anything and then President Trump came back and made it a lot better with Section 232.

So who is going to come back and say, let's import steel into this country. So car manufacturers need to believe that these changes are for real as much they believe that the electric vehicle lie was truth. So if they had applied half of their conviction in electric vehicles to bring -- to reshore production to the United States, Dearborn will be back. And because Dearborn is not back, backlogs are tight for them, and I'll keep them tight. But once they move in all earnest out of aluminum into steel and backing our proposal of bringing manufacturing back to the United States, that's basically the proposal of the government of the United States, we're going to have Dearborn back until they do that, no.

Okay. Understood. I appreciate those comments. Maybe just as a follow-up, as we think about the Dearborn restart, should we think about it hinging on auto improving further? Or could you make a decision to restart that capacity just to increase hot-rolled production, let's say?

I thought I was clear. So we are comfortable with what we have right now with the situation we are seeing right now. Maybe the clients are not comfortable. They are tight. They are with running on tighter schedules than they would like to see. But there's an easy solution, but they need to give me the conviction that I can bring a blast furnace back is we're talking more than 2 million tons. So I need the conviction that things -- the conviction that this thing -- they will bring back and they will stay and they are not going to go back to Mexico or back to Canada or importing steel or producing cars in South Korea. I hate all these things.

I want them to produce cars in the United States, employ Americans. And then I can employ Americans here in the United States as well. It's so simple. How can we have consumption without employment. We're not going to have that. They need people to buy the cars. These people need to have jobs. So that's what we're discussing here. It's a lot less on one side decisions by the company and much more on a macro level. And I believe that the U.S. government has shown very clear what's going to happen next. So we are ready to go, but we're not going to go until they are ready to go. And I don't feel like they are ready to go. They prefer small increments. That's fine with me.

We are showing that we are good at that as well. Almost half of my business in flat-rolled steel is automotive, there's another half that's really pretty damn good as well. And we are on plate for shipbuilding. We are on electrical steels for the grid, the only producer of grain-oriented electrical steels. We are on stainless. We are on a lot of things that make a lot of money for us as well. So I can go either way. But our footprint is well designed for automotive, automotive coming, automotive executing, we are right there for them.

That's very clear. I really appreciate those comments. My second question was just on debt paydown. Obviously, the outlook is improving. And so I was wondering if based on that outlook, kind of what your expectations are for debt paydown in total over the next few quarters and how much nonoperating cash flow, the asset sales or any other sources could contribute to that?

Yes. I mean I think we've been pretty clear that debt paydown is going to be our #1 capital allocation priority, and we've sort of laid out how much free cash flow we expect to generate, Nick. So the debt reduction will be consistent with free cash flow generation. The asset sales obviously juice that even further. But until we get to our target, our leverage target, we're not going to prioritize any other type of capital allocation.

And then as you know, we have a balance sheet that we've been very thoughtful about. We've been really proactive on pushing out maturities. We don't have anything maturing until 2029. So there's no immediate kind of refi needed at this point. We have a good ABL in place. So there's nothing urgent on the balance sheet. It's just a matter of delivering on the results, generating the cash and paying down the debt and getting to our target.

Nick, just a quick addition to what Celso just said. I usually don't comment on that. But today, I have to. The presentation that is loaded in our website following the Q3 -- I'm sorry, Q2 results. Every quarter, we put a presentation there. I never comment. The presentation is really good and gives a lot of further information on our path to bring back this leverage to a true handle in the next year. So I would like to direct not only you, my friend, but everybody else in the call to take a look on that presentation.

There's a lot of work there and a lot of information that we are making public through the presentation on our path to bring leverage down in an extremely important way, and that will happen in the next year or so. So please spend a little 5 minutes there just to take a look on that because we're going to see that we know exactly how to get there and how to use our cash flow to bring back leverage to 2-point-something times in the next 12 months.

Our next questions come from the line of Richard Garchitorena with Barclays.

Congratulations, Celso. So I wanted to touch on the commentary on the guidance and expectations for 4Q better than 3Q. What's driving that in terms of different buckets? Are you expecting additional price gains, lower costs? And what are your expectations on volumes because we typically see some seasonality in the fourth quarter. So just curious sort of what's driving the incremental improvement.

Yes. Richard, welcome back to the business. How long have you been out of the steel business? Because I haven't seen you in a while. I assume you're doing something else.

I was covering the sector. I was actually on the buy side. Yes. I was on the buy side.

You were in the buy side. Welcome back to the sell side. So anyway, look, we have -- because of the way we sell steel, we have a good visibility into volumes. And with the 2 months, with sometimes a 2-month lag, we know what price we're going to be executing. And we also know the volumes and how we're selling to our clients. So that's why we have conviction on Q4 as well as we have conviction in the number that we gave for Q3. Of course, chances are that we're going to get to a number that will be $5 million more, and we don't consider that a bit.

If we do $5 million less, we are not going to expect you guys to say that we missed our own guidance. So we are guiding to a number because we want to give you what we have in terms of what we see right now. But we have a lot of conviction on what we are seeing for Q3. As far as Q4, we already baked in the fact that around Thanksgiving week, we're going to have less shipments. We also baked in the last week of the year or the last 10 days of the year when business shuts down. So all these things are taken into consideration. We expect that these things will happen.

We also -- we are seeing the appetite of the car manufacturers growing, like I said, growing slowly and probably with a lot more -- not probably, with a lot more potential if they apply the conviction to bring business to the United States that they did before when they were convincing themselves that everybody in the United States would buy electric vehicle. So if they apply half of the conviction that they had, we're going to be in a position that we can really bring Dearborn back and get it done with a much higher volume and we can produce a lot more cars in the United States and sell more made-in-USA cars to the American consumer. So like Q4 is basically what we're seeing right now. So it's good. And we believe that we're going to get what we said we will.

Okay. No, that's great to hear. And then maybe just to touch on 2027. I know you talked about non-auto fixed contracts opportunity renewing in '27. How should we think about that in terms of where they were originally signed? And then what's the price embedded in your $500 million? Is that current pricing that we're seeing? And also just in terms of how we should see that play out through next year, is that going to be a stairstep as the contracts get renewed? Or should we see spread out through 2027?

Very first thing, the pricing levels that were the prevailing prices, underlying prices during the time that Mike Cooney and Mike Hrosik were renewing our contracts with our clients last year were in the $800 level, maybe less. Today, they are in the $1,150 level or maybe more. So the starting point of negotiation has moved up a lot. And the clients know at this point that there is no chance that they can go ahead and harass us with imported steel. "Oh, if you don't buy from me, I'm going to import."

So okay, be my guest, go import. Go get the vessel through the Strait of Hormuz. So for example, or bring it from Ukraine. So it's not going to happen. So we are not going to use that to make our clients less profitable. Actually, I have a full conviction based on my 45 years of experience in this business that higher prices benefit everybody, not just the mills, but the service centers, the OEMs, everybody. We just can't keep our business alive by forcing that business to produce and sell the product below cost. That's a recipe for disaster.

On the other hand, we are not greedy. We're just realistic. We need to make a return on investment that we make in order to supply these clients and keep them in good health, financial health as well as our own financial health. So that's what we expect this negotiation to be more of a mature negotiation between business that understands the codependence and understand that there's no such a way that they can take money out of my pocket and be happy, and we're going to be happy as well. We're going to be happy when we are happy because I'm making money. And we'll also be happy because they are happy because they are making money. That's the beautiful backdrop that we're going to be negotiating with.

Thank you so much, ladies and gentlemen. This does now conclude the question-and-answer session. And with that, I would like to bring the call to a close. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.

Good morning, ladies and gentlemen. My name is Kevin, and I'm your conference facilitator today. I'd like to welcome everyone to Cleveland-Cliffs First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question-and-answer session.

The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions. Such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Important factors that could cause results to differ materially are set forth in reports on Form 10-K and 10-Q and news releases filed with the SEC, which are available on the company website. Today's conference call is also available and being broadcast at clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay.

The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I'd like to introduce Lorenzo Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Kevin, and good morning, everyone. The first quarter of 2026 was the beginning of a sustained improvement progression that will continue through the rest of the year. While Q1 results could be better and they would be better. if not for a couple of one-timers, we can see the clear signs of a positive trend for me.

Among these one-timers, the impact of the spiking on energy cost was the most relevant to Q1 results. Now to the good news. 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. Historically, Pricing changes took about a month to flow through our realized numbers.

Today, the lag is closer to 2 months. In practical terms, -- that means the pricing strength visible in the market today will increasingly show up in our results as we move through the year, quarter by quarter. That combination, strong backlogs, disciplined production and visibility is what a healthy steel market looks like.

The extended lead times allow us to optimize production schedules in our mills, improving our overall efficiency, productivity and costs. This market strength is driven by what is happening on the trade front, steel imports into the United States are at their lowest levels, since 2009. By now, it's clear that Section 232 works, the melted and poured mandate works and the enforcement works.

Along those lines, we are very encouraged by the recent changes in how derivative product tariffs are being enforced. Distribution transformers were added, which is exactly the right outcome. The Trump administration has given the domestic steel industry what we needed and have been asking for. Union jobs are being protected. -- domestic supply chains are more resilient and mills are running at higher utilization with real predictability.

The 1 piece still missing is Canada. There's a robust domestic market in Canada for our Canadian subsidiary, Stelco to sell steel into, but the Canadian market is still oversupplied with steel from countries that are no longer able to dump their excess capacity into the United States. Because of that, they dump steel in Canada. That said, we are confident that Canada will ultimately get to the right place and enhance its own national security defenses against the negative impact of foreign steel causing the destruction of Canadian companies.

We truly believe the Canadian government is honest about defending Canadian jobs in Canadian steel workers. We fully expect that Fortress North America can be and will be implemented by Canada because that's totally within their own power. Canada does not depend on anyone else to do so and Canadian jobs are the ones at stake. The national security base for steel tariffs is being validated in real time. The war activity in Iran has disrupted global freight lanes, driven up energy prices and destabilized metal supply chains.

Imported steel is now not only subject to tariffs, it is structurally more expensive due to transportation costs, energy volatility and geopolitical risk. And while this global uncertainty is exposing weaknesses elsewhere, it is strengthening the position of domestic steel producers like Cleveland-Cliffs.

Nowhere is that more evident than in aluminum. The aluminum industry has been hit repeatedly, fares power shortages, curtailments, geopolitical disruption and customers have taken notice of all that. Automotive OEMs are prioritizing supply certainty, total cost and safety. Our Cliffs Steel delivers all of that without the fragility embedded in aluminum supply chains.

In my long career in this business, I have never seen so much momentum and substituting aluminum with steel. And automotive is not the only place, where the shift from aluminum to steel is occurring. Building products, appliances and truck trailer sectors have been recently gravitating toward more steel use as well.

As we advance the use of our Cliffs steel, being formed in equipment previously utilized exclusive for aluminum, Cliffs has demonstrated to our clients with real-life results, the most potential benefit to market share gains from aluminum. We are also pleased to inform all of our stakeholders that in February, Cleveland-Cliffs received from our clients, Toyota, the Toyota Quality Excellence Award.

Toyota does not hand out quality excellence awards lightly. Their standards are amongst the strictest in the world winning that award is confirmation that our processes, consistency, execution and our overall quality are at the highest level for Toyota's high standards. That strength has drawn attention from companies outside the United States. When we last spoke, we expected to achieve during the second quarter, a mutually satisfactory transaction with POSCO in accordance with the memorandum of understanding signed by both companies last year.

This goal remains achievable, but the currency disruption in the Middle East and its impact in the country of South Korea have not helped accelerates the conclusion of our ongoing discussions. That said, our engagement with Post is active, and we still believe a deal can be completed within this time frame or slight later.

Our Department of Energy-funded projects, we -- on this side, we continue to make solid progress. The Butler Works electrical steel expansion project is moving along as planned and remains on schedule for 2028 completion. Similarly, our Middletown Works project has received a clear affirmation that the project will proceed once the updated scope is finally approved, and we are now in the final stages of completing that work.

The revised scope of the project reflects a modern blast furnace configuration that position in Middletown among the most energy efficient in the world. Taken together, the Butler and Middleton projects underscore our disciplined approach to modernization, investing in critical infrastructure in a way that strength domestic still making improves efficiency and supports long-term competitiveness.

At the same time, we are continuing the footprint optimization actions we began last year. At Burns Harbor, we are idling our smaller plate mill as we have successfully been able to consolidate all capabilities of the 110-inch mill into the 160-inch mill. This removes an inefficient line, improved utilization at the efficient 160-inch mill and strengthen our cost performance without sacrificing any capability.

We are also idling the Gary plate finishing line, which is no longer needed. There will be no loss in overall steel production or layoffs, as we will backfill those roles in areas where we have seen rate attrition. We expect that these operational changes, coupled with the positive momentum, we have been currently seen in the plate market should enhance our earnings from the plate business.

On rare earth, we continue to analyze our potential on these critical minerals. That said, economics hedge on domestic refinement capability. And today, that infrastructure is extremely limited in the United States. Refinement is capital-intensive and not something we intend to pursue ourselves. If and when, viable domestic refinement infrastructure becomes available either through government-supported projects or third-party investments, we see ourselves well positioned to take advantage of the opportunity.

We have also partnered with a leading and prominent AI provider to help us take a meaningful step forward in how we run the interface between operations and commercial, particularly by embedding AI into our production planning and order entry processes. Their platform allows us to use machine learning models across our internal data to anticipate constraints optimizing sequencing and making better decisions in real time rather than after the fact.

Our people are good, but it's impossible to perfect these processes with humans running Excel spreadsheets. This initiative will ultimately move us from human experience-driven planning toward a new and enhanced AI-assisted decision-making system that scales with the complexity of our operations. We expect to make a full announcement on our AI initiative, including the name of our partner in the next few weeks.

One important milestone we will navigate in the coming months is the renegotiation of our labor agreement with United Steelworkers. Our employers are the backbone of this company and their skills, commitment and pride in what they produce are critical to our success. In our evolving and increasing in capital-intensive industry, we must ensure that the structure of our labor agreement supports competitiveness, flexibility and long-term sustainability.

We approach these discussions with respect and realism with the goal of reaching an agreement that rewards our workforce, while strengthening the company's ability to invest growth and remain a strong employer for the kings to come. This process represents a meaningful opportunity for both Cleveland-Cliffs management team and our union workforce to demonstrate the depth and the strength of our partnership and we will not disappoint anyone.

With that, I'll turn it over to our CFO, Celso Gonsalves, to go over our financial results.

Thank you. Good morning, everyone. Our adjusted EBITDA in the quarter was $95 million, a $274 million increase from a year ago due primarily to increased pricing. Starting with the top line. First quarter shipments totaled just over 4.1 million tons, which represents a recovery of more than 300,000 tons sequentially. That improvement was driven by better demand conditions across spot and trade channels and by a more stable operating cadence coming out of the fourth quarter.

We were still impacted by weather-related disruptions, but volume strengthened as the quarter progressed. Shipments should increase further into Q2 as this trend continues. That volume recovery is critical because of the fixed cost nature of our business. Every incremental ton we produce and ship has a disproportionate impact on margins. The operating leverage embedded in integrated steelmaking remains substantial.

Pricing also moved in the right direction. Average selling prices increased by $68 per ton from a year ago and sequentially by $55 per ton during the quarter, reflecting improving market conditions and better automotive pool. This came in slightly below our original estimate as contractual lags were longer than anticipated based on customers ordering at MAX levels.

As mentioned earlier by Lorenzo, what used to be roughly a 1-month realization lag has effectively extended to closer to 2 months as our order book has filled and schedules have stretched. That means price strength visible today will show up more fully in Q2 and Q3 results. In the U.S., about 45% of our sales are linked to the commodity HRC price. The remainder are under fixed price arrangements like in automotive or linked to other indices like we have with plate.

In Canada, effectively all shipments are sold on a spot price basis, but that price has completely disconnected with the U.S. price. Historically, pricing in Canada was effectively in line with pricing in the U.S. But in today's market, the Canadian selling price is at a 40% discount to U.S. pricing. This is still margin positive for Stelco, but well below what this entity would have generated historically in this type of pricing environment.

On the cost side, the most visible pressure in the quarter came from energy and the impact of the extreme cold weather we felt here in the Midwest during the winter. We lock in most of our natural gas purchases for the following month, 3 days before the start of each month. The day that gas was locked for the month of February was the highest price in 3 years and it very shortly thereafter came back down to historical levels.

This piece of the energy spike was known at the time of our last call and was partially offset by hedges, but we also felt an immense impact from the run-up in electricity and industrial gases. We have 3 EAF facilities and 2 integrated facilities in the unregulated states of Ohio and Pennsylvania. And when prices jump like they did during the cold weather months, we feel a direct impact.

All factors considered, the energy spike drove an $80 million negative impact to EBITDA in Q1 relative to historical expectations. Since then, natural gas and electricity prices have normalized, but we've seen other cost pressures emerge. The cost of fuel, for example, has impacted mining costs at our iron ore pelletizing operations, and scrap has continued to grind higher as well.

Combining these with the impacts of some scheduled outages in Q2, our Q2 cost should tick up another $15 per ton higher before falling meaningfully in the back half of the year. We will update our cost expectations on a quarterly basis. All of our other full year expectations, including volume, CapEx and SG&A remain in line with prior guidance.

SG&A has been a clear area of success for us, while earnings have been under pressure. Even after acquiring Stelco in the fourth quarter of 2024, which naturally added to SG&A, we've been operating at essentially an all-time low on a quarterly basis since becoming a steel company after factoring in noncash amortization that is added back to EBITDA.

This is good evidence of our cost discipline even after absorbing the impact of acquisitions and normal inflationary pressures. The result is a leaner overhead cost base that positions us well as operating conditions improve and underscores our ability to trim fat and capture synergies.

Turning to cash flow. First quarter free cash flow was negative as expected, primarily due to working capital timing. Our first and third quarters are always heavier cash use periods due to the coupon schedule of our high-yield bonds. Accounts receivable increased during the quarter as shipments accelerated into March. This along with higher pricing compared to the prior quarter is a recipe for a large receivable build, but the evidence is clearly there for a major cash collection quarter in Q2.

Combining this higher collection with higher EBITDA, sets us up for a return to meaningful positive free cash flow in Q2. From both an EBITDA and cash flow standpoint, Q2 should be our best quarter in nearly 2 years. And that is -- and that will be the quarter where we have a number of outages across the footprint. Because of this, our full shipment and cost potential will not be on full display until Q3, which is an outage light quarter.

Q3 will give us maximum operating leverage on volumes and pricing and is where you should expect to see the earnings power of this business become much more apparent. If the steel price curve holds constant, the improvement from Q2 to Q3 will be even better than the sequential improvement from Q1 to Q2.

Our job right now is to run reliable operations and let the strong market we're in, take care of the rest. Our outlook on improving leverage position remains firmly supported by the expectations for strong free cash flow generation over the balance of the year, along with the completion of multiple real estate transactions currently in process.

Our $425 million cash received expectation from idle property sales remains on target, with 2 more properties going under contract since we last spoke. As we translate earnings into cash, and close on these asset sales, we expect to further strengthen the balance sheet and continue making progress towards our longer-term leverage objectives while maintaining the flexibility to operate the business from a position of strength.

We're also pleased to have come out of the most cash-intensive use periods at Cliffs, still with liquidity above $3 billion. I will now turn it back to Lorenzo for his closing remarks.

Thanks, Celso. In closing, -- what's fundamentally different today is that trade enforcement is working. Our customers are engaged and our order book is full. This company spent the last couple of years fixing what needed to be fixed. That work is largely behind us. The footprint has been rightsized and we finally have the platform to perform and deliver.

From here, the focus is on execution, running reliable operations, serving customers at the highest level, generating cash and allowing the strength of this market to flow through the income statement. With that, I will turn it over to Kevin for questions.

[Operator Instructions] Our first question today is coming from Carlos De Alba from Morgan Stanley.

The first 1 is maybe. Celso, could you comment what are the price expectations in terms of changes quarter-on-quarter for the first -- for the second quarter Obviously, with the lag moving, maybe this has changed versus what we had expected. So any quarter would be great.

And then in the release, you mentioned that you stopped -- you finally ended the shipping material on the Metal slab contract in the first quarter. Can you give us a color as to how many tons did you ship in the first quarter for that contract? And/or what is the impact on EBITDA that you calculate you suffer from steel basically shipping a few months after officially the agreement was ended?

Carlos, that's Lorenzo here. Let me answer the slab first and then Celso address the previous portion of your question. We had a tale of shipments on these labs. That is not tonnage-wise, is not really meaningful, but it's still a drag. It was 175,000 tons of slabs that are still in the tail end of shipments.

But it's over. It's done. And now they do not have any labs from us. ArcelorMittal covered is on their own devices and gaming led from other sources other than Cleveland-Cliffs. Celso, please take the...

Sure. Carlos. Yes, let me give you some general guidance on Q2. As I mentioned, Costs are going to tick up a little bit from Q1 to Q2. But the way to think about it is Q1 was much better than Q4. Q2 is going to be much better than Q1 and Q3 should be much better than Q2. From a shipment standpoint, Q2 shipments are expected to improve from Q1 and remain above that 4.1 million tonne mark.

The trends that we're seeing here in Q1 are expected to continue into Q2. Automotive shipments are expected to increase after reaching the highest level in almost 2 years during Q1, and that's going to get even better in Q2. Selling prices are expected to be up about $60 a ton from Q1 to Q2. We expect to see the same kind of benefits we saw in Q1 related to pricing.

The monthly quarterly and spot pricing are all up Canadian pricing is improving. As we mentioned, the final slab shipments to cover are not on -- we posted a slide deck in our presentation. You can see sort of the updated contract mix -- so right now, it's about 43% on a fixed full year price with the resets throughout the year. 23% is linked to month like indexes. 7% is on a quarter lag indices. 12% is U.S. spot and 15% is Stelco spot.

So that should give you a view on mix. We talked about pricing. We talked about costs and we talk about shipments. So I think with that, you should have enough for Q2 and then Q3 should get even better from there.

next question today is coming from Nick Giles from B. Riley Securities. .

Yes. Thank you, operator. So you built working capital in 1Q that's somewhat expected. But to what extent could we see that unwind in 2Q? And can you just describe if or how you'll need to further build just to meet the increasing demand, higher shipments later in the year?

Nick. Yes. So the Q1 build of working capital, about $130 million was primarily driven by AR as pricing continued to rise in March. Shipments were strong and it was offset by a reduction in inventory. As we look towards Q2, you should see a slight release in working capital as we further reduce inventory. That's the way to think about it.

Got it. And then just on POSCO, at this point of the negotiations, do you feel that there are certain aspects of any deal that are already decided? Or is there really still active dialogue around different structures? Any color there would be great.

Let me take that one, Nick. I think what -- the biggest change that happened between when we first start talking to POSCO and now is the outside of the negotiation between us and POSCO, the world surrounding us changed a lot. Remember, when we were first approached by POSCO, we were in a price environment that was a lot weaker demand was a lot weaker in the United States.

And POSCO was coming with a proposal of bringing businesses from Korean companies to be reestablished or established from the first place in the United States in the short term because the the [ new ], the Hyundai [ milk ] in Louisiana is a long-term proposition at best. It's not a short-term thing that can resolve things right away. So we would be their lifelines.

That said, the situation in South Korea changed a lot. Even though I'm not by any stretch in possession of any information -- internal information about South Korea, it's clear that things are a lot more complicated for all Asian countries, including South Korea right now, than they were 2 or 3 years ago. And that's the lag.

On the other hand, from our side here in the United States, markets be prices are stronger. Automotive OEMs are producing more cars in the United States, and they rely on Cliffs to build those cars in the United States. It's not like they want us to supply steel to Mexico because they will use our steel to produce parts in Mexico and then bring back to the United States. They want to do it in the United States.

And we do have the capacity right now, idle available, not so much it anymore because we're getting more and more and more orders from the auto OEMs. So our situation is getting better. And that is changing our perception on how this deal should be taken care of. We are still engaged, we're still talking. We still like each other. We still want to deal that is accretive for our shareholders.

And I assume that they want the same thing for their site. Let's see what happened next. But we are -- by any stretch, we are no longer in a hurry. We are not before. We are a lot less in a hurry now. I hope I gave you the overall picture. If not, please go ahead and ask a follow-up question, Nick.

And that's great. I really appreciate that perspective and give you best of luck.

Next question is coming from Martin Englert from Seaport Research Partners.

Hello. Good morning, everyone. question on unit cash costs, if you could touch on your exposure to diesel through the upstream mining operations and implications on unit cash costs. And if there's any hedging activity that we should take into consideration there.

Yes. Martin, yes, we're seeing some impact. Diesel is a meaningful cost component of the mining operations. We don't hedge diesel anymore. We hedge natural gas, primarily 50% of our exposure, but since we became a steel company, we don't hedge diesel anymore. So the impact -- the annual impact on kind of truck and rail services overall is about a $50 million annual impact on mining costs, which is about $6 per ton.

Okay. And then net...

Consume about 25 million gallons per year of diesel.

And the natural gas component in the mining operations, that's around like 8%, 10% of overall natural gas for the company?

The natural gas associated with mining specifically is about 20%.

Okay. And then within auto, can you touch on the degree that you're seeing a shift back towards steel from aluminum, if any yet? And if it's meaningful volume, when this might be occurring is this something that might be happening after summer shutdowns in automotive or anything like that? I'd be curious on more color if you have any to share.

Yes. It's happening as we speak. And it's -- I don't have tonnage from the top of my head here, but it's meaningful for the fact that once you break the dam it goes because lets us [ to a car ] that we are now in this -- I can't give you, of course, names or details. But we are supplying the tenders that used to be aluminum vendors and now our steel vendors.

Then they need to rethink a bunch of riveting operations and the type of welding and things like that. That's a difficult part, and we are beyond that part. So now instead of not having aluminum, they have steel -- so the engineering departments of these OEMs. And by the way, I'm not talking about any 1 specific, but it's happening across the -- the board in terms of all OEMs we serve and we serve them all.

They now see how feasible it is to step still even using the previous equipment that they had to stamp aluminum. And it's easy to assemble the changes are not meaningful and they do have the material instead of not having the material. So it's happening. It's growing -- and we are already seeing the opportunity to run lines that we are not running before. We brought back the EGL line -- the electrogalvanizing line at new Carlile. There was do for a long time. So we are seeing all that happening as we speak. So it will be an ongoing process as the year progresses.

And presumably with gravitation back towards that might move your auto mix a little bit and to more favorable mix/margin overall for the steelmaking business. Is a fair assumption?

Well, the automotive business continues to be a profitable business for us. The fixed prices are not by any stretch detrimental to our profitability. So we just need to get more tons, and that's exactly what not only just the substitution of aluminum [ distis ] bringing. But the fact that the clients are a lot less excited about cost, cost, cost and then they are seeing the the beauty about reliability, quality, the material that they can count on and things like that.

So it's back to basics. Back to the important factors that were in place before every single OEM decided that they would be like Tesla and they would produce only electric vehicles. And that ship has say then left a very bad experience with all OEMs -- at that point, everybody was focused on costs. And that's when the less prepared competitors started to participate in automotive more than they should -- and that's being fixed and that is being corrected. So that's what we're seeing right now.

Our next question is coming from Nick Cash from Goldman Sachs.

Lorenzo and also I guess my first question is on the slab contract. Last quarter, we were talking about, I think, about a $500 million increase in EBITDA when prices were at around $90 million. with prices where they are today, I think back of the envelope math gets you about $100 million in revenue higher. Is that all operating leverage and are conversion costs sticky? Or is that not the way to think about?

Yes. Sorry, it was a little hard to hear your audio, but I think we captured your question around the slab math. But yes, it sounds like your math is reasonable. There are some offsets on scrap pricing, energy costs and things of the like. But I think your assumptions are in line.

Awesome. I appreciate that. And then just 1 quick follow-up, hopefully, you can hear me. got it for another 15% increase per ton in cost in 2Q due to higher scrap and fuel for, I think, a drop-off in 3Q, '26. What gives you confidence in that drop off? And I guess where does that kind of put you for full year guidance on cost increase or decrease per ton, if you can give that color.

Yes. So you got to remember that Q2 is a big outage quarter. So pricing -- I'm sorry, costs naturally would tick up on a per ton basis due to the outages. And then Q3 is a very outage light quarter. So inventory from the high-cost period has sort of worked down into the subsequent quarters. And then we're continuing to see automotive volume ramping. Every unit is running at higher utilization. So as that materializes into Q3, that's when you're going to see the benefit of the cost dilution.

Your next question is coming from Albert Realini from Jefferies.

Would you be able to just walk us through some of the break costs or just any broader economics if a scenario where the possible opportunity were or not materialize? I just -- I know you had mentioned previously some of the larger-scale asset sales like Toledo and certain FPT assets would be off the table while discussions with POSCO were ongoing. So just kind of wondering how you think about Wayne continued discussions with POSCO versus the ability to go out to the market with some of these higher valued assets in the current strong steel price environment?

Yes. Look, we can't try to create hypothetical scenarios here to the costs come home. But I don't think it's productive because, for example, right now, yes, you're right. The HBI sale, I'm not considering anymore. And it started because -- at least for now. It started because of the discussions with POSCO. But right now, HBI stretched my ability to produce hot metal and helps me increase production.

You saw that shipments were higher, production was higher and Q2 shipments will be higher and production will be higher. And HBI is helping us get there. because we loaded the HBI in blast furnaces, for example. And we also use them in our EAFs. We still have 3, EAFs. So it's not like it's a burden. It's a positive. And we are discussing here cash flow, and we are going to continue to generate cash flow grow cash flow, you're going to start seeing that happen in Q2.

So that's why I don't like playing a hypothetical scenarios. Things continue to be the way they are shaping up right now, and shipments continue to go more toward the 16.5 million to 17 million tons for the year. We're going to need the HBI to get there. And that will be very, very accretive to the company. So we like cash flow generated by operations. and we will continue to pursue that. All the rest is hypothetical that there is no real meaning on trying to speculate.

Next question is coming from Lawson Winder from Bank of America Securities.

Thank you, operator, good morning, Lourenco and also, it's nice to hear from you both. And it's nice to see the solid Q-over-Q EBITDA improvement. If I could just drill down a little bit on some of the discussion we've already had on the unit cost guidance for -- so just thinking through the different moving parts, we're adding back $80 million from the onetime energy spike. That's about $1,950 per ton at 4.1 million tons. And then there's an additional $15 million. So net, we're getting about a $35 million gross increase in cost Q2 to Q1.

I mean pushback, if you think that's the wrong way of thinking about it. But if you could just kind of walk me through what the different pieces are, I think you mentioned $6 per ton for diesel, but there's obviously some other pieces there. Could you just help us think through those components?

Yes. Sure. Lawson, I appreciate the comments. So let me drill down here. We saw these production issues in Q1 from kind of onetime extreme weather and energy-related issues. And some of that, there's a little bit of carryover from that high energy cost via just the inventory carryover.

And then further to that, into Q2, you also have a richer product mix as we continue to improve on automotive. So we're seeing some impact -- there's carryover impact from Q1 to Q2. You have the outages in Q2 and you have a richer mix in Q2. And then we're starting to see some of the impact from the kind of the war-related costs related to diesel and freight and things like that. So that sort of explains why Q2 costs are ticking up a little bit higher by $15 a ton.

And then when you get to Q3, the cost benefit a lot from improved utilization, lower outages, lower energy costs, continued asset optimization, lower coal pricing, and a lot of reduced repair and maintenance costs. So while Q2 ticks up from Q1, Q2 -- Q3 should tick down meaningfully from Q2. So that's the cadence of the sequence of events as we look forward for the next couple of quarters.

Okay. Yes, that helps. And is that the correct assumption that you're effectively also getting a Q2 quarter-over-quarter $80 million tailwind in EBITDA from the reduction of those onetime energy costs, so something like $1,950 per short ton benefit?

Yes. I mean it's not really 1 to 1. It's not like -- like I said, some of that carries over and gets carried through the inventory costs. So it's not like -- I can't tell you that you just remove that entirely quarter-over-quarter?

But you should remove for Q1 -- you should remove for Q1. That's what you should do because that should not happen, would not have happened without the external factors, and that's real. We use our procedure to buy the stock that we buy in the market, hedging the same way we always hedge it. We did everything by the book and we are unlucky things happen.

And I'm sure we are not the only 1 that we're unlucky. Let's see how others will report as we go. But the fact of the matter is that it hurt and it hurt badly. Q1 was supposed to be better without that. That's why we point out because it's a real number that we can pinpoint and show. But going forward, yes, there is inventory impact and things like that. But on the other hand, we're going to get a lot more value-added material from automotive. We are acting on other things that we will offset. So it's very difficult to identify like that, but it was very easy to identify Q1. That's why we point out in our press release.

Okay. That's very helpful. And then if I could just ask very quickly on the land sales. I appreciate that predicting the precise timing of those can't be easy. But are they still all expected to close in 2026?

Yes. Yes, we are very confident that the counterparts are acting to get their problems solved and their financing in place. We continue to sign enforceable contracts. So we have 2 more in the quarter. So all going -- all these deals are going very well.

Our next question today is a follow-up from Carlos De Alba from Morgan Stanley.

Yes. It's basically a follow-on precisely on the last question, Lawson. So you have received $70 million already this year on asset sales. So should we expect you have any color on the cadence of the remaining, what is it, EUR 350 million in proceeds throughout the year or just this year is the expectation, but no further details from that.

Let's put $50 million in Q2 and $100 million in Q3, with the remainder in Q4.

Our next question today is coming from Timna Tanners from Wells Fargo.

I wanted to ask a little bit about the mix, if I could. Have plate market is really strong. And I just wanted to get a little more color on why the actions you took in -- if -- just talk about how that keeps your capability similar despite some of the closures?

And then similarly, Stanson Electrical down year-over-year? And I thought Electrical was sold out for a couple of years. So just a bit more color on those products would be great.p

On plate, we shut down a bill that was basically taking care of 1 client and associated with the Q&T line that is inside Garyworks that doesn't belong to Cliffs. So the logistics was not very enticing. So all the rest remains the same. So what you said about the plate market is right. But we are talking about 1 specific client that was used in the 110 and the Q&T line at Garworks. So that's that -- so we could reconsolidate that and do another way. So there is nothing wrong with that because the 160 is now -- the 160-inch mill is now fully utilized. So that's all good we played.

As far as electrical still we got to differentiate grain-oriented electrical steels that there is only 1 company that produced in the United States that's Cliffs, and oriented electrical steel that we have ourselves and a cup of Bs that are not producing very good material, but they are trying. But on the other hand, the biggest utilization of non-oriented electrical steel is electric vehicles.

So good luck with that for the ones that made investments to produce non-oriented electrical steels. As far as grain-oriented electrical steels, we are the ones not only the ones that produce but the ones that are growing production with our project in Butler. I hope I answered your question, Tim.

We ran have our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you very much. Have a great day. Bye now.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Good morning, ladies and gentlemen. I'm your conference facilitator today, Kevin. And I'd like to welcome everyone to Cleveland-Cliffs Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause results to differ materially are set forth in reports on Form 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website. Today's conference call is also available and being broadcast on clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay.

The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning.

At this time, I'd like to introduce Lourenco Goncalvez, Chairman, President and Chief Executive Officer.

Thank you, Kevin, and good morning, everyone. After several years of no real actions taken to reverse the systematic destruction of the American industrial bases, we finally saw in 2025, a federal administration that values the importance of preserving and growing American manufacturing. That said, in 2025, throughout the entire year, we were still exposed to a lot of steel imports, poisoning our domestic market, creating a demand gap that negatively impacted our steel shipments and asset utilization. In response to these challenging conditions, we made difficult decisions on shutting down assets that are dragging us down. Also, in 2025, we terminated our index-based lab supply contract with ArcelorMittal. The contract became very onerous in its final year when the Brazilian slab price index unnaturally separated from the U.S. finished steel prices. The factors that waited on our performance in 2025 were well-known and addressable. As we entered 2026, these problems have either been resolved or are clearly improving. We have already secured more business from our automotive clients, and that will show throughout 2026 as the OEMs reassure production back to the United States.

Also very important, at the end of 2025, the Canadian Government has finally made a move to restricting imported steel into Canada, and that has created positive momentum in 2026 for our Canadian subsidiary Stelco. Our robust order book is the best confirmation that the business environment has already started to improve. Section 232 tariffs at 50% are, of course, a leading driver of this impact. We are seeing the benefit of melted import requirements in driving demand for domestically produced steel. A lot of the new galvanizing capacity in the U.S. has come online and taking share from imports, reducing the amount of hot-rolled availability in the marketplace. We have been able to use the melting capacity previously allocated through orders of low-margin slabs to few orders of higher-margin flat-rolled products. That said, due to melted import requirements, we anticipate continued demand for our domestically produced labs. We remain open to being a domestic's lab supplier to those in need of domestic labs as long as we can agree on a pricing construct that makes sense.

With all these positive influence, the spot steel price is sitting at a 2-year high. Later in the recent cold weather stretch across the Midwest, scrap prices and electricity prices have continued to grind higher, which has increased the cost structure of the mini mills to a greater level than our own. This has given us a cost advantage as we generate a lot of our own power and use much less scrap. Even with our sizable fixed price automotive footprint, because of our vertically integrated nature and the also significant size of our nonautomotive customer base [indiscernible] profitability is more impacted by spot steel prices than any other company in our industry. Said another way, when hot-rolled coil prices rally, we at Cleveland-Cliffs benefit. Automotive is still our core end market. And when domestic production levels of car, trucks and SUVs remain weak for an extended period, the impact on us is unavoidable. Vehicle production in the United States was down in 2025 for the third consecutive year. But with this new era of policy-driven reshoring, the return to pre-COVID levels of vehicle production in the United States is inevitable. Throughout 2025, we geared up for this inevitability by signing multiyear fixed price contracts with all major OEM customers. These agreements increased our market share and secure the high-margin business that will flow through in 2026. We have the installed capacity available right now. Cliffs does not need to build new plants. Unfortunately, the transition to Cliffs Steel from the previous suppliers is not instantaneous. It takes some time before we see the full impact of these changeovers, but we will see it in 2026. The expected combination of these market share gains with an increased domestic production of vehicles will be a massive gain for our throughput, efficient -- efficiency, costs and ultimately, profits.

One more time, differently from our competitors currently building new steel plants or announcing plans to build steel plants, Cleveland-Cliffs has production capacity available right now. Again, Cliffs does not need to build plants to be ready in 2028, 2029 or 2030. The incremental volume demanded by the automotive industry can and will be absorbed by our existing footprint. That volume carries attractive incremental margins. And thanks to our multi-year fixed price contracts with all major automotive OEMs, there will be no pressure on the price of cars to consumers in the U.S. that could even remotely be attributed to the price of Cliffs Steel. Another example of the progress we continue to demonstrate in automotive is our successful replacement of aluminum with steel using aluminum forming equipment. Our Cliffs steel is now stepped into exposed automotive components using existing forming equipment on a production scale basis. This Cleveland-Cliffs development demonstrates that the changeover from aluminum to steel can be easily done without requiring new tooling or capital investment from the customer. That significantly lowers the barrier to adoption and expand the addressable market for our Cliffs steel products, particularly as the aluminum supply chain has suffered severe disruption with a succession of fire events, clearly exposing its weakness more than ever before.

Cleveland-Cliffs is seeing a clear path to replace aluminum with made in U.S.A. steel in major applications. We operate in a market that companies from around the world are spending billions of dollars to enter. We are already here. We already have the assets. We already have the workforce as manufacturing activity in the United States continues to record Cleveland-Cliffs is the best positioned to benefit without requiring massive capital investments.

I want to drill down on another factor that impacted our 2025 performance, and that was the change in dynamics in the Canadian steel market. For the last several years, even under the previous tariff regime, pricing in the Canadian market moved the intend with the U.S. market. We acquired this Stelco on November 1, 2024, four days before President Trump's election and immediately took Stelco out of the U.S. market, redirecting Stelco's output 100% to the Canadian market. This was not driven by policy change, but rather our conviction on what's in the best interest for our shareholders and our employees on both sides of the border. Even the all surprising change in Canada relations with the U.S. should not have affected this strategy at all, but that's not how it played out. All of a sudden, Canada became a dumping ground for producers trying to avoid U.S. tariffs; and downstream Canadian manufacturing was negatively impacted as well. Canadian pricing decoupled from U.S. pricing. Until recently, the Canadian Government insisted on doing nothing about this unsustainable situation preferring to watch its steel industry flounder for the sake of globalism.

After raising the alarm louder and louder, we finally saw the Canadian government come around late in the fourth quarter of 2025. While still insufficient and limited in scope, the restrictions implemented were at least able to stop the bleeding. As a result, we have seen Canadian pricing and shipments improved in the last month. Prior to our acquisition, Stelco was a low price exporter into the U.S. and the highly disruptive one, by the way. When you look at the big picture, what our acquisition has done to transform and improve the U.S. marketplace more than justifies and supports a return on our $2.5 billion purchase price of Stelco.

In the fourth quarter, we revealed that our memorandum of understanding partner was POSCO, Korea's largest steelmaker, and the world's third largest steel maker outside of China. The partnership with Cliffs, we will allow POSCO to support and grow its established U.S. customer base while ensuring that its products meet U.S. contrarian melted import requirements. Our collaboration represents a model of how allies can deep industrial cooperation under fair and transparent trade principles. And it aligns with U.S. policy goals to strengthen domestic industry and attract foreign investment. POSCO continues to conduct due diligence as part of our recently announced strategic partnership, both parties are focused on structuring a transaction that is highly accretive and strategically compelling for each company. The duration of these negotiations reflects the seriousness and potential scale of the opportunity. We are targeting signing a definitive agreement in the first half of 2026. This remains the #1 strategic priority for both Cleveland-Cliffs and POSCO, and engagement between the teams is active and ongoing.

Our MOU is nonbinding, and we will only move forward on ratifying our partnership if the collaboration is accretive to Cliffs shareholders.

I would like to conclude my remarks congratulating our employees for our remarkable safety record. In 2025, we achieved the lowest total recordable incident rate since Cleveland-Cliffs became a steel producer 6 years ago. Our TRIR, including contractors, which is unusual in our industry, we include contractors, our TRIR was 0.8 per 200,000 hours worked. That represents a 43% improvement compared with 2021, which was our first full year operating as an integrated steelmaker. This is a direct outcome of how we manage and operate in contrast with how the predecessors used to do with the same people and the same plants. Safety performance at this level requires discipline, consistency and leadership at every site. We have room for improvement, but the amount of progress we have seen in safety results since forming this new iteration of Cliffs 6 years ago is truly remarkable.

I will now turn it over to our CFO, Celso Goncalves, for his remarks.

Good morning. Total shipments in Q4 were 3.8 million tons, which was slightly lower than Q3 due to heavier-than-usual seasonal impacts. Looking forward, Q1 shipment levels should improve back to the 4 million-ton level again, driven by improved demand and less maintenance time at our mills. My expectation for full year 2026 shipment level is in the 16.5 million- to 17 million-ton range, an improvement from 2025 as we run our mills at higher utilizations. Q4 price realization of $993 per net ton fell by around $40 per net ton as the lagging indices on spot prices declined. Automotive volume fell and SLA prices became even more disconnected. Since these factors are largely behind us, I expect a substantial improvement in realized prices starting in Q1 of 2026, an increase of approximately $60 per ton from Q4 of 2025. As pricing continues to grind higher and assuming this trend continues, we will likely see even further increases in this price as the year progresses. On the operations side, 2025 represented our third straight year of unit cost reductions, with another $40 per ton reduced last year. The much needed rationalization of our footprint and reduction of around 3,300 employees last year was a big part of that. We have further momentum heading into 2026 as we locked in coal contracts that generate over $100 million of savings year-over-year and an expectation of much higher utilizations, both in melt and in our finishing operations. Combining this with some partial offsets in utilities and labor costs, we expect unit cost to decline again for a fourth straight year, down another $10 per ton in 2026. On an apples-to-apples basis with 2025, the reduction is even greater as we are also selling a richer mix this year without slabs, making the year-over-year reduction even more impressive. With that said, for the first quarter of 2026, the recent spike in utilities costs and change in mix will likely push costs up temporarily before normalizing into Q2. As a reminder, we generally hedge 50% of our natural gas exposure are looking forward 1 year. On CapEx, we had a record low year in 2025 in capital expenditures as a steel company, with only $561 million spent. 2026 total CapEx is projected to be around $700 million, reflecting more normalized maintenance capital as well as some prework and a coke plant upgrade ahead of the Burns Harbor furnace reline plan for 2027.

Annual pension and OPEB cash obligations continue to decline. With the HRC curve where it is and automotive volumes ultimately returning, I expect to return back to healthy cash flow generation in 2026, all of which will be used to pay down debt. Asset sale processes continue and they should bring us more cash proceeds throughout the year. We have already closed the sale of FPT Florida, and we are under contract to sell several idled properties with agreements in principle for the majority of the rest. My expectation of the $425 million in total proceeds from these sales remains intact. Some of the larger asset sale processes remain in a holding pattern while the POSCO talks remain ongoing, but we have several options out there that we are evaluating. One major success we had in 2025 was balance sheet management, particularly in the fourth quarter. From a pure dollar perspective, our leverage remains too elevated for my liking, but the shape and format of our debt structure gives us incredible runway and flexibility. After the refinancing that we completed in 2025, our nearest bond maturity is now in 2029, and all of our outstanding bonds are unsecured. Our ABL draw is the lowest it has been since the Stelco acquisition, and our total liquidity to end 2025 was $3.3 billion.

The focus this year is on generating EBITDA and cash flow. I feel much better about where we are today versus where we were 12 months ago. Looking ahead, our order book is solid, demand is improving, lead times are going out Prices are rising, costs are still coming down, tariffs are in place, the slab contract is gone, manufacturing is coming back. Unemployment is low, rate cuts are here, tax refunds are coming, Stelco is contributing, autos are looking to replace aluminum with steel, POSCO is collaborating, our employees are incentivized and our operations and commercial teams are working together towards the same goal to maximize profitability in 2026.

With that, I'll turn the call back over to Lourenco for his closing remarks.

Thank you, Celso. 2025 was about fixing what needed to be fixed, making tough but necessary decisions and positioning Cleveland-Cliffs for sustainable performance in a fundamentally improved market. Those actions are now largely behind us. As we move through 2026, we are operating with a linear footprint, a stronger order book improving price realization, declining unit costs and a clear line of sight to higher utilization and cash generation.

With that, I'll turn it over to Kevin for the Q&A.

[Operator Instructions] Our first question today is coming from Carlos De Alba from Morgan Stanley.

My first question is on the benefit that you expect on the cancellation of the slab contract this year, given the running prices that we have seen, can you maybe update us as to how much EBITDA more or less or any other form of benefit that you expect to see from these contracts expiring? And then maybe we can -- just on CapEx beyond 2026, given the relining that you expect on 2027, how much should we pencil in give or take for CapEx in 2027.

Yes. Carlos, I will answer the question on the slabs. And I will let also talk about the CapEx one. As far as these slabs, when we sold -- I'm sorry, when we acquired ArcelorMittal U.S.A. from ArcelorMittal. We had that slab contract, the last item that we had to negotiate. And it was more about duration than pricing formula because pricing formula was based on the international price of slabs and referencing the Brazilian is land prices just because Brazil was by far the largest exporter of slabs at the time. So -- and for 4 of the 5 years, the contract to work it. And then on the fifth year, magically, the separation between the price of slabs and the price of hot band turned that contract into a diaster. And we try to negotiate the contract, but we were unsuccessful because short-term gains for them were more important than the long-term relationship. So I'm fine with that. So I took it like a big boy, and now they don't have [indiscernible] anymore. So good luck on running their business here in the United States without having melted imported slabs made in Cleveland-Cliffs, not made in somewhere else. Somewhere else, does not know what they are doing. We know what we are doing. So they don't have these slabs anymore. And if I can put a number on the the gain, the EBITDA number by itself is to the order of $500 million just by replacing these slabs with higher margin. That's a very high-level number and should be even more than that. But $500 million is a good number to to start thinking about the gain of not heavy. And that's just a benefit on us, not the fact that competition for automotive business became automatically weaker when you don't make our slabs available to our competitor.

I'll let Celso answer the other one on CapEx.

Sorry, maybe before we move to Celso, please. Quick question on when should we expect to see the beginning of this, around EUR 500 million improvement in EBITDA already in Q1, or is it more Q2?

Yes. Look, we are already selling the material in Q1, yes. So -- but of course, you know how these things work, the cost flow through inventory, and you're going to see more impact in Q2 than in Q1 and then more impact in Q3 than in Q2, but that's our projection for the year.

Yes. Carlos, if you think about it, right, the HRC price is $9.70 or so and the slab price was like $4.85. So it's a pretty immediate improvement in terms of revenue at the current price, it's like a $700 million improvement in revenue at current market prices. And then you consider call it, $150 million increase in conversion cost to roll the slabs. That's the way to think about it on a full year basis for 2026. Yes, and then as it relates to CapEx, as I mentioned, 2025 was a record low at $5.65. We had dramatically reduced spend at Stelco. We had CapEx avoidance related to idle facilities and asset optimization and things like that. 2026 will be more normalized, that $700 million. Call it, more normalized maintenance spend and some prework and pre-spend related to the Burns Harbor reline in 2027. And then beyond '27, it goes to, call it, $900 in 2017 and then back down to $700 in 2028. And the only reason that $27 goes to $900 is largely because of that blast furnace realign at Burns Harbor.

Your next question is coming from Nick Giles from B. Riley Securities.

Lourenco, you outlined the capacity you have today and attract incremental margins on what I heard is uncontracted volumes. So you've layered in some multiyear agreements, but I was wondering if you could give us a sense for how much open capacity that is, what could still be contracted and similar to Carlos questions, just any sensitivity from an EBITDA perspective.

Yes. Look, we have downstream capacity in pretty much every single location that we operate in. Just to give you an idea, let me take a simple example, single-line galvanizing line we have in Columbus, Ohio. That was one of the first assets that were got in the -- were cut the attention for POSCO. We run that line at less than 300,000 tons a year. That line has a capacity of 450,000 tons a year. We can produce all kinds of exposed parts of it there. But we don't run at full capacity because the OEMs don't produce cars in the United States as much as they should. They produce in Mexico, they import from Korea, the import from other places, and that's what kind of queues our automotive business. And it has been abundantly clear since day 1 of the Trump administration. The directive is to produce cars in the United States, not importing cash from Korea and putting a stamp of an American OEM on top of that. It's still a Korean car. It's not an American car. It's not a generated American jobs. So that's what queues our capacity utilization. We need this maybe, let's say, automotive production in order to utilize our capacity. What I just explained with numbers for Columbus, Ohio. I can do the same thing for Rockport, Indiana, for other downstream facilities like what we call, New Carlyle, Indiana, the used to call [indiscernible] under previous ownership. We we have a lot of capacity to deploy. And it's a matter of just moving from commodity type, which, by the way, now is extremely profitable to a more specialized type of steel that it's typical Cleveland-Cliffs type of capability or forte in terms of the technology. By the way, we have the technology. We are a well-known and well recognized supplier of automotive still in the international scale. And we knew that all along. Now we have the agreement of POSCO on that. So there is nothing that we need to learn from POSCO how to do stuff. We know how to do stuff. We just don't have the orders. But now we're going to have it.

I really appreciate all that detail. My second question was really just around the outlook, particularly here in 1Q, HRC has obviously risen dramatically. So can you just help us set expectations around ASP and costs and maybe just [indiscernible]

Yes. I'll have Celso handle that for you.

Yes. Hi, Nick, let me give you guys some general guidance for Q1 and the rest of 2026. So for Q1, shipments should return back to that 4 million-ton mark, and that's largely driven by improved demand, both in the U.S. and Canada. Q1 auto shipments are expected to improve back to the, call it, Q3 of '25 levels or better. As I mentioned, ASP is expected to be up $60 a ton in Q1. And all that pricing that negatively impacted Q4 is now positive for Q1. The monthly lag, the quarter lags and the spot pricing are all up. Canadian pricing is also improving. We talked about the end of the slab contract and the automotive volumes increasing is also a benefit. The way that we calculate ASP has changed slightly. So let me give you guys the new kind of guidelines for that. Given the expiration of the slab contract and the increased automotive volume. The way to think about it going forward is around 35% to 40% is on a fixed full year price with resets throughout the year, obviously. And then 25% of the volumes are on a CRE month lag, 10% is on a CRU quarter lag. And then the balance, call it, 25% to 30% is the spot and other, including the Stelco volumes. So that's the way to think about ASP going forward. Costs in Q1 will likely be up around $20 a ton before normalizing into Q2. But as I mentioned earlier, on a full year basis, the cost from '25 to '26 on a full year basis is expected to decline $10 per ton with further even with adjustments for richer mix and the expiration of the slab contract. So on an apples-to-apples basis, the cost will be down even more, but should be down around $10 per ton with the current construct. I think with that, you should have everything you need for -- to get a sense for Q1 and the full year 2026.

Next question is coming from Lawson Winder from Bank of America.

If I could ask on POSCO, like I think there's no question that it is serious and potentially transformational for Cliffs. I was just curious, you made the remark that POSCO is still continuing their due diligence Cleveland-Cliffs completed its due diligence on POSCO?

Look, yes, that's correct, number one. Number two, keep in mind, Lawson, they came to us. We did not look for them. So that's a very important point to consider. So that shows that we feel like they need us probably much more than we need them. That's my view. That said, we are proud of our negotiation and our conversation and our potential partnership. One thing to keep in mind, our Cleveland-Cliffs Board of Directors will not approve any deal that's not accretive to our shareholders. So that's what we're working on. Forming a partnership with POSCO is our #1 strategic priority at this point. And based on what they say to us, that's the same thing for POSCO. We believe that we would be able to provide to POSCO, the ability to [indiscernible] trade and rig requirements, particularly melted import into the United States in the short term, what they need, absolutely need. They will not be able to sell here without complying with that requirement, that thing is not going to change. It's clear at this point. And this is a market that everybody wants to be in. And we are the only possibility for any company that is outside of the border of the United States to be inside the border of the United States. So POSCO is in the pole position in a very comfortable position to have a partnership with us. We absolutely love working with them, and they seem to like work with us. Now it's a matter of finalizing an agreement that's accretive to both Cliffs and POSCO, what should not be difficult to accomplish.

That was very helpful. If I could ask 1 following question. Just on the aluminum opportunity, I mean, I think it's really intriguing. Could you maybe frame that up for us in terms of the size of the opportunity to take share from aluminum in terms of tonnages. And then what would be the time line to achieve those tonnages?

Yes. Look, this was the type of thing that we have been have been asking for an opportunity to prove ourselves to our clients. And for some reason, they were committed to keep the status quo in place until they are no longer because it's not just the ones that use massive amounts of aluminum. That's obvious. That's absolutely obvious. We can't rely on supply chain of aluminum that very weak in the United States, and they proved that by having a succession of fires in the same plant in a space of 40 days or 45 days. And also truly dependent from aluminum produced abroad, knowing that Canada is another country like they like to say, we are not a 51st state, yes. We agree with that. It's outside of the border of the United States, it's another country. Yes. So that's why they are subject to Section 232 and will continue to be because they are another country. So aluminum from Canada is not a strategic solution for the supply chain. And then we proved our point that stamping aluminum or stamping steel for the type of steel that we Cleveland-Cliffs produce is the same thing. And we prove that at this point with few different OEMs, and they know what they need to do, and we are ready for them. Timing is on their control, not my control. We are ready. We proved that. We are getting orders at a production scale basis. And this should only be growing and the potential, the potential of the size of aluminum utilized. The best-selling vehicle in the United States has a lot of aluminum in the outside. We are starting to produce parts for that vehicle. So I can tell you without triggering any problems with my clients.

Our next questions coming from Alex Hacking from Ciber line.

Can you maybe [ Juan Brag ] on earnings Stelco has been for the past few quarters, and that kind of by proxy, how much potential upside there is as Canadian markets turn around. And just for context, we're looking at a Canadian publicly traded peer that's guiding to losing over $250 a ton of EBITDA in 4Q. I assume Stelco is doing better than that, but yes, anything you could do to help quantify that?

Yes. Alex, it's Celso. We don't break down EBITDA by mill, but obviously, Stelco was disappointing in 2025, as you can imagine. But the good news is that they're a contributor now. We've seen a lot of improvement recently that will lead to significant EBITDA increase in 2026. And if you think of the big picture on a net basis, even though they haven't been contributing to the bottom line, it has kind of changed the dynamics of the market and has helped our U.S. business. And that's only going to be amplified here as HRC pricing in the U.S. has found some footing at a higher level. So you can't really think of Stelco as a standalone. We're happy with the asset. We're happy with the people. They have -- we have great people that work for us at Stelco, but you have to think of the business as a whole. And going forward, they're going to be a much bigger contributor to the big picture.

Yes. Alex, Lourenco here. Let me add a little bit more on the Stelco comparison with with a competitor. The competitor had the same business model still selling to the United States. And we bought Stelco to do one thing that the competitor is ever willing to do, changing their business model to sell into Canada. And we did, like I said in my prepared remarks, a few days before Trump President Trump was elected, let alone, President Trump was in office, and let alone, President Trump implementing Section 232 tariffs in April. So we did that in November. So we were way ahead of the game in terms of how to reposition Stelco. Another thing that we took from Stelco that we did not have before is made in Canada coke in our coke better over there, which is a U.S. MC compliant feedstock. So that was a benefit for us. And that benefit will continue to be in place. The other thing is that if we had not had all the imports from the United States being redirected to Canada and have the Canadian board accepting that as normal course of business would have had a completely different 2025. It took us almost one entire year to convince the Canadian government that was completely unsustainable situation. And we finally -- they finally made a move. Move was a lot smaller than the move that we would like them to make, but that was enough for us to see a completely different dynamics in the domestic market in Canada. So the comparison between stock and the comparator, it's not a good comparison. Got to be Stelco for Cleveland, Stelco for Cliffs going forward. And the Stelco for Cliffs in 2025 was not as good as we envisioned basically because domestic Canadian prices went down due to the avalanche of imports into Canada. That has been put on hold. That has changed, and we will have a completely different 2026 because of that.

I guess just following up how much better can 2026 look? Like on the price side, where do you think Canadian prices should be with a new tariff policy versus where they are title.

Yes. As also said, we don't break down still results into our results. So we do not disclose that. But it's easy to see that based on how bad 2025 was and used the competitors as they referenced for that specific point, you'll see that there will be a 19-day. They will be a contributor and that will be a significant contributor to Cliff's results.

Next question today is coming from Albert Realini from Jefferies.

So just, Celso, I think you kind of alluded to it a bit, but the $425 million in total proceeds that are potentially under contract closure and agreement. I think you had said that doesn't include some of the larger skill assets. And I think you had mentioned that those would be on hold until anything with POSCO were to be finalized. So I guess what I'm asking is that total amount of proceeds from the asset sales could be a lot higher, and then timing would be until anything with POSCO would be finalized. Is that my understanding correct?

Yes. So Albert, so the $425 million, that's the totality of all of kind of our idle plants that we're marketing. And there's interest across the board for all of them. We've received $60 million so far, but we're in discussions to sell the rest, and that would add up to the $425 million. Beyond that, we have the larger assets that we could sell that there's been some interest around specifically Toledo HBI and FPT assets. So that would be in addition to the $425 million. Now we put these larger asset sales on hold, given POSCO's interest in our business. They're looking across our entire footprint. So we don't want to jeopardize the POSCO opportunity, which is much bigger, but for whatever reason, if the POSCO opportunity were to not materialize, we could pick up where we left off on the larger asset sales. And we've had some meaningful interest in those as well. So that would be in addition to the $425 million correct.

Albert, just a slight correction. Celso said in the discussion, some of the discussions are already signed contracts. So we are beyond a little beyond the just discussions. We have contracts in place and it's a matter of going between a binding contract and a sale agreement that -- at closing. So it's -- these transactions are real. It's a matter of time for closing. So like we have done so far, we do want that already close.

We reach end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you very much, and you guys enjoy 2026 as much as Cleveland-Cliffs will. I appreciate your interest in our company. Thanks a lot. Bye now.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Good morning, ladies and gentlemen. My name is Donna, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs Third Quarter 202 Earnings Conference Call. [Operator Instructions] The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995.

Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Important factors that could cause results to differ materially are set forth in the reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company website. Today's conference call is also available and being broadcast at clevelandcliffs.com.

At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results, excluding certain special items. Reconciliation for Regulation G purposes can be found on the earnings release, which was published this morning.

At this time, I would like to introduce Lourenco Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Donna, and good morning, everyone. Our third quarter results were a clear indication that a significant rebound in domestic steel demand has started, and the automotive sector is leading the way.

It's now widely accepted and understood that tariffs are here to stay, particularly the Section 232 tariffs on steel, autos and derivative products. These tariffs are not a negotiating tool, and the only effective way to avoid tariffs is manufacturing in the United States.

With all that, third quarter was our best auto steel shipment quarter since the first quarter of 2024. That's a very encouraging sign for what's coming in 2026 and beyond.

Over the past quarter, Cleveland-Cliffs was able to lock in 2 or 3-year agreements with all major automotive OEMs, covering higher sales volumes and favorable pricing through 2027 or 2028. These are not small renewals. These agreements represent strategic commitments to domestic steel sourcing by the most relevant auto OEMs.

Many of these customers have told us directly that they want to reduce their exposure to tariffs and to foreign volatility. They want stability and resilient supply chains. With a total of 9 automotive-grade galvanized steel plants, 5 of them designed to produce exposed parts in all specs and with, Cliffs is the natural partner for the car manufacturers expanding production in the United States.

President Trump's trade agenda has steel and automotive as part of its core. These two sectors are not just economically relevant, they are fundamental to national security. Rebuilding this strength is essential to sustain America's industrial independence and to improve our national defense readiness.

The same industrial base that builds advanced vehicles and powertrains for civilian use, supported by domestic steel production can also provide the engineering capability, supply chain depth and logistics expertise required to support the American military. There is no question that the resurgence of the U.S. auto sector supported by domestic steel is a matter of great urgency.

While other steel companies are still building or promising to build new capacity to be ready in 2028, 2029 or later, Cliffs is ready for 2026. Our state-of-the-art automotive-grade galvanized steel plants, Spartan and Dearborn in Michigan, Middletown, Cleveland and Columbus in Ohio and Rockport, Indiana Harbor, Burns Harbor and New Carlisle in Indiana; are all up and running.

Cliffs has plenty of capacity right now. And the multiyear contracts we have signed with our automotive clients should give us the demand we need to make all these plants work at full capacity and at full employment levels.

This quarter also reminded the automotive OEMs, while steel, and Cliffs steel, in particular; is irreplaceable. When light weighting became a major trend several years ago, some automakers jumped on the aluminum bandwagon, chasing immaterial and expensive light weighting gains while ignoring very meaningful technological advances in the production of high-strength steels and more importantly, the enormous supply chain risks they were assuming.

A huge fire at the nation's largest automotive aluminum-producing mill this past quarter revealed the fragility of that shift. Vehicle models that were years ago moved away from steel and towards aluminum are suffering the most.

The silver lining is that switching back to steel is now under serious consideration by the most affected OEMs. Recent trials of conforming parts with our steel using equipment originally designed for aluminum are showing very promising results. This is a huge win for America-made steel and a validation of everything we have been saying for years.

Domestic steelmaking, and particularly Cliffs steel, is the backbone of the American automotive supply chain. We fully expect that aluminum's participation in the automotive space will continue to shrink, with Cliffs being the biggest beneficiary of the trend.

The resurgence of U.S. manufacturing, enabled and support by the Trump administration, has made Cliffs very attractive to a number of major global steel producers. These steelmakers supply steel within their respective countries to important clients, and these clients are now moving production to the United States. Exporting steel into the U.S. is no longer a viable option for these foreign steel companies. Like they are still consuming customers, these folks need a physical presence in the United States.

Cliffs is a fully integrated steel company, starting from mining iron ore and going all the way downstream to the production of high-end finished products, and that is all based in the United States. These foreign interest in Cliffs is fully aligned with President Trump's agenda of strengthening America's industrial base and attracting foreign investments.

With all that, a few months ago, we were approached by a major global steelmaker, who wants to leverage our footprint in the United States to enable a smooth onboarding for their downstream industrial clients moving production from their country of origin to the United States.

During the third quarter, we entered into a memorandum of understanding with this global steelmaker, and we expect to make a formal announcement in the next few months. I will not take any questions on this subject today.

Separately, we have made excellent progress selling profits that no longer fit into our production footprint. I am pleased to report that we are under contract or agreements in principle for 8 of these sites with a combined total value of $425 million. The proceeds of these sales will go directly towards debt reduction.

As for our larger operational asset sales process run by JPMorgan, this is currently being deprioritized, given the comprehensiveness of our MOU with the global steelmaker. We are not quite pencils down on this process that advancing our negotiations under our MOU is now our top priority.

While our U.S. business is on a clear path to recovery, we completed on November 1, our first year of ownership of the Canadian steel company Stelco. The picture in Canada remains disappointing. Roughly 9% of our total sales come from Stelco in Canada, and that market continues to lag our expectations.

There's only one cause to the problem. The Canadian government has been completely unwilling to act against [ dump ] steel into Canada. Important steel penetration into the Canadian market stands at a ridiculous and absurd 65%. The Canadian government could easily resolve the problem by replicating what the United States has done under Section 232, impose meaningful tariffs, close loopholes and enforce implementation of these antidumping countermeasures.

With other regions of the globe moving in the right direction, even the European Union has recently tightened its quota and tariff regime, Canada stands alone in doing nothing. A bailout loan as the one given by the Canadian government and the province of Ontario to Algoma, one of our Canadian competitors, is not a fix for the problem.

Trying to weaken Section 232 in the United States, just to bring back Canadian steel into the American market, is even worse. Stelco under our ownership does not want to and should not depend on selling steel into the United States for its survival. Stelco could thrive exclusively by selling steel in Canada.

While I confess my inability to convince the several Canadian government officials I regularly speak with, I continue to expect Prime Minister Carney to make a move in the right direction. Let's see how long it takes or if I would need to be more persuasive.

Meanwhile, the U.S. government continues to grow as our partner. During the quarter, we were awarded a 5-year $400 million fixed-price contract by the Defense Logistics Agency of the U.S. Department of War. This contract covers up to 53,000 net tons of grain-oriented electrical steel, which the U.S. government intends to store for national security purposes.

The award underscores Cliff's position as the only U.S. producer capable of supplying this critical material GOES, grain-oriented electrical steel, further reinforcing the strategic importance of our electrical steels to the nation's defense and energy infrastructure.

Also, we recently learned that our 2 projects receiving grants from the Department of Energy at Middletown, Ohio and Butler, Pennsylvania were not included on the constellation list that ended more than 200 other projects. As such, we will proceed with the bottle project on schedule, and we will also continue to work with the DOE on the new scoping of the Middletown project, which is critically important as that blast furnace will be relied in the next 4 to 5 years.

Last but not least, the growing strategic value of rare earth elements has prompted us to revise this potential within our mining portfolio. We view this effort as both an opportunity and as our responsibility. Comprehensive reviews of our ore bodies and tailings basins have identified 2 sites, one in Minnesota and one in Michigan, where geological surveys show evidence of rare earth mineralization.

We continue to assess our potential on both sides. Advancing this initiative with position Cleveland Cliffs is squarely within the nation's pursuit of critical material self-sufficiency. We believe Americas industrial foundation must never depend on China or any other foreign sources for essential minerals. Cleveland-Cliffs is committed to contributing to our independence from foreign powers on critical materials.

With that, I will turn to our CFO, Celso Goncalves for his remarks.

Thank you, and good morning, everyone. Our third quarter results were driven by steady operational execution and much better-than-expected pricing, supported by automotive strength. Our adjusted EBITDA in the quarter improved to $143 million, a 52% increase over the prior quarter, driven by margin expansion from higher realized prices and improved mix.

Our steel shipment volumes were 4 million tons in the quarter, a reduction from the prior quarter as a function of summer slowdowns and our continued discipline in the broader market.

Fortunately, as a result, our mix shifted favorably toward automotive, which drove our average selling price to $1,032 per net ton, up $17 per net ton over the prior quarter. This improvement in price is entirely driven by automotive shipments moving from 26% to 30% share and coated volumes moving from 27% to 29% share.

On the cost side, we continue to deliver great results as our unit costs adjusted to the much richer automotive mix. Our continued cost performance was almost entirely driven by the footprint optimization activities we announced earlier this year and have fully implemented at this point. The third quarter was the first full quarter, we operated with these operational efficiencies in place, and our projected annual savings of $300 million from these maneuvers remain on track.

We also continue to take further action to reduce both SG&A run rate and capital expenditure budgets. Our CapEx budget for 2025 is now $525 million, down from our original expectation to begin the year of $700 million. This is reflective of dramatically reduced spend at Stelco as well as the now-changing DOE projects at Middletown.

In addition, full year SG&A expectation is now down to $550 million from our original expectation to begin the year of $625 million. These savings are reflective of overhead and incentive pay cost cuts in response to weaker demand conditions.

Another upcoming item to highlight is the December 9 expiration of our onerous slab contract. For the past 5 years, we've been bound by a contract that valued imported slabs using the now irrelevant Brazilian slab index. That index no longer reflects the real cost or value of American steel, much less the value of our automotive-grade slabs produced at Indiana Harbor.

With the contract expiring, we will reclaim that production internally using our melted and port slabs to serve growing automotive demand.

This past quarter, we also took advantage of the strong high-yield market and refinanced the entirety of our remaining bonds maturing in 2027, leaving us with a runway of more than 3 years with no upcoming bond maturities. Our next bond maturity is not until March of 2029, and those notes can be redeemed at par starting in March of next year. Together with the outstanding balance on the ABL, we have plenty of prepayable debt to pay down with the incoming proceeds of property asset sales and future free cash flow.

Our gross debt amount remains elevated, but we will have ample opportunity to pay it down over the coming quarters. That said, the composition of our debt and maturity runway leaves us with plenty of flexibility going forward.

The primary end markets that we serve, transportation, manufacturing and construction; have been experiencing recession-like conditions over the past 12 months. We have navigated this with our operational improvements, footprint optimizations and reductions in overhead and capital costs.

The construction and general manufacturing sectors still remain relatively weak. But if history is any guide, those sectors will follow the trajectory of the automotive sector, which is now tracing upward. We have finally started to see a bit of restocking activity in the distributor and end-user markets, an indication that the new tariff reality for those buyers is setting in.

The signs of a real recovery are forming, and we need consistent demand and stable policy to keep it going. Once these policy changes give us the demand boost that we need, the foundation that we have laid with these operational improvements will propel us further to amplify EBITDA and cash flow.

With that, I'll now turn it back to Lourenco for his closing remarks.

Thanks, Celso. Q3 showed the first clear signs that the tide is beginning to turn. Automotive is rebounding, our cost actions are working, and trade policy is delivering measurable results.

But we are not declaring victory yet, we can and will do better. Our onerous slab contract will soon go away. Our automotive volumes will continue to increase, and we will finish what we have started. That includes the execution of the final agreement and the beginning of the work, which will follow our transformational memorandum of understanding with our major global steelmaker partner.

With that, I will turn it back to Donna for questions.

[Operator Instructions] Our first question today is coming from Nick Giles of B. Riley Securities.

Cliffs has been a national champion in the U.S. metals and mining industry for over a century. So it's really good to see you taking the initiative on the rare earth side. My question is really how quickly could you produce products in this vertical? And could you look to be a vertically integrated producer? Would you look for a partner?

Thanks, Nick, for the question. Look, we have the opportunity to develop the mining, assuming that all these original studies will play out as we expect. And we'll go from there.

It's very clear that the U.S. government is very quickly realizing the importance of having an industry for this type of minerals inside the borders of the United States. And that's also, in my opinion, an opportunity for cooperation with Canada, another unexplored opportunity that we can develop with our northern neighbor. So there are several ways to go with this thing.

And the important thing is that the geographical location would be good for both. We can do it inside the United States, we can do it in Canada because we're very close across the point, across the Great Lakes. So it's very easy to work within the United States or with Canada. But these are the two options I see going forward.

Maybe just as a follow-up, I mean, what resources have you brought in to date to explore the opportunity? And when is kind of the first mile marker in terms of a potential product mix or any economics? Should we be thinking about something early next year? I appreciate any color.

Look, we identified two sites that have the most promising. We are working with the geologists to assess whether these deposits could become commercially viable. That's where we're at. And don't forget, as you said, we are a mining company. So this is not new territory for us. We understand mining into these land more than anyone because we have been doing for a long, long time.

And we will see how we go from there. But that's a potential that we will not let go without putting a lot of effort and a lot of ingenuity into getting this done inside the United States or in partnership with Canada that has experienced in mining. There is not so rare elements that are called rare earths.

Our next question is coming from Mike Harris of Goldman Sachs. Mr. Harris, please make sure your phone is not on mute.

We'll move on to the next question. The next question is coming from Lawson Winder of Bank of America.

Could I ask just about your decision to deprioritize the asset sale process? How has that process gone to date? And then, has there been any interest? And if so, in what assets?

Look, like I said, the process, we did not stop by any stretch. Actually, we closed on a portion of the sale of FPT during the [ weekend ]. So we have -- during the course, we have a signed contract. I misspoke. It's not a closing yet, but it will be a short closing.

And the portion that we sold on FPT is not even a site that we explore for our own EBITDA. So it doesn't change at all, the EBITDA that we generate from FPT. So we're very pleased that we had more than one part interested on that specific portion of the of FPT, including the Florida assets. And we are very excited with the opportunity to continue to sell the remaining portions of FPT as we go.

The other asset, Lawson, that we are considering selling would be our direct reduction plant in Toledo, Ohio because as you might conclude on your own, but I will reiterate here, we have no interest in building a flat-rolled mini mill ourselves. I was keeping that HBI plant to supply Big River in case we had the opportunity to acquire U.S. Steel, which did not play out.

So as we did not acquire Big River through the acquisition of [ U.S. Steel ], I don't see any specific and strategic value of keeping direct reduction plant producing HBI with a strict goal of supplying flat-rolled mini mill producing more of a high-end type of flat rolled products. That's not my problem anymore.

So we still have a lot of interest in that specific plant. But this discussion with the MOU and the subsequent work that we are doing with our partner is showing that we might be doing other things with that plant, which I will not elaborate at this point.

So I'm kind of still considering alternatives, but I'm deprioritizing that because the MOU trumps, no pun intended, the opportunity of selling itself as a stand-alone unit, the Toledo plant.

Okay. Understood. That's very clear. If I could just follow up on your comment on FTP, should we be looking for some sort of announcement on that sale of a portion or partnership?

I just made it. We are under agreement to sell the Florida assets to SA Recycling. So that's the deal. So it's out. I just said it to you.

Can you provide any detail on economics at this point? Or is it too early?

No.

Okay...

But it's good. And if you apply a multiple to a site that generates zero EBITDA, you can pick one. So it doesn't change the economics of the rest. That's the importance of this sale. That's why I'm disclosing.

That was an asset that from me was always completely relevant because I'm not going to put a mini mill in Florida to produce rebar or anything else. So that was not a site that was interested from the get go. It came as a an addendum to what I was really interested in having the real FPT, the FPT around Detroit and our own prime scrap. And that's completely preserved.

And there are other companies, more than one actually interested in acquiring the rest. And they both have the same thing in common. They don't want Florida. So we moved Florida. But we are not going to review the number, but the number is extremely good, and you'll see liquidity going forward. But you got to wait because this is just a signed agreement, it's not closed yet, so we can't disclose the number.

The next question is coming from Phil Gibbs of KeyBanc Capital Markets.

Question is on the auto contracts. Did any of the new contracts kick in during this quarter or do any of the new contracts kick in during the fourth quarter?

Yes. We have some kicking in October 1. I'm simplify when I'm saying 2026 because it's a short quarter. Fourth quarter, particularly in automotive, is not a quarter that we are excited about because we know we're going to have shutdowns through the end of the year. That's normal course.

Sometimes we have -- I'm not sure about this year because they are really busy, but it's normal course for them to shut down around Thanksgiving as well. But we are going to see a lot of activity coming from these contracts as the year turns to 2026.

So we're super excited with everything that's happening with General Motors, Ford, Stellantis with this big announcement of $13 billion, bringing back the plants that we were, by far, the largest supplier.

So all these things are coming to us. At this point, we have Ford, we have Hyundai, you have Honda. We have Toyota in North America. These are all happening. And the good thing, Phil, is that the car manufacturers finally realize that it's not a good thing to wait and wait and wait and seeing that the Trump administration is not changing their tune.

I think Secretary Lutnick was very clear when he said, the United States will be first in producing automobiles. Canada can be second. So that shows resolve. So I'd like to see that, and that helps us in terms of getting our business moving in the right direction. So we are good.

And then just a follow-up on the cost side. What does the guidance imply for further unit cost reductions in the fourth quarter? And should we expect any more momentum in the first part of '26?

I'll let Celso handle this one. Please, Celso.

Yes, sure. Phil, if you look at the cost performance in Q3, adjusted for the increased automotive mix, we still expect costs to be down $50 a ton year-over-year when adjusted for this mix.

You can see in our track record achieving cost reductions dating back to 2023. We achieved an $80 a ton cost reduction in '23. We were down another $30 a ton in '24. And then now in '25, our unit costs are still expected to be down $50 a ton. So we're not changing the guide there.

Just as it relates to other Q4 kind of talking points and general guidance that I can give you, shipments should be similar as Q3, around 4 million tons. You have to consider seasonality with the holidays offsetting improved demand. Auto shipments are expected to be similar. And then in terms of pricing, you probably have all the pieces that you need to calculate the ASP for Q4. So relative to Q3, Q4 costs should be relatively similar to Q3.

Our next question is coming from Carlos De Alba of Morgan Stanley.

Just on -- following up on the auto contracts, and -- can you maybe give us some comments on the volume growth in implicit in these new agreements and potentially an indication of how much pricing may be moving up or down or staying flat? Definitely a very important piece of the business going forward.

Look, directionally, these contracts will generate a lot more margin for us, including margin per ton. And that's all I can share at this point with you. These are good contracts. But we realized one thing, Carlos, that probably has been missed throughout this entire conversation. And I'm trying to -- in my prepared remarks, I'm now using your question, so thanks for the question.

I will try to explain a little bit about what Cleveland-Cliffs really is in terms of the automotive industry.

We hear a lot about market share in automotive, gaining market share, losing market share. Let's understand one thing. Cleveland-Cliffs has so much more capacity to produce the steels that the automotive industry needs in comparison with any other supplier or any other one of the supplier of automotive steel, that is not even a topic of conversation talking about market share, about these type of things.

We have 5 plants, plants that are ready to supply a lot more exposed parts than we are supplying right now, not because we lost market share, but because the car manufacturers, who are producing cars in places like Mexico, Canada, South Korea, and I'm talking about American car companies; even in Japan, American car companies. So that's the absurd of the entire thing. And that was being corrected.

So as they are being compelled, in the lack of a better term, to produce cars in North America, in certain cases like Stellantis, they are coming to senses and coming back to the reality that North America is their main market and Cliffs is their main supplier; we are seeing the business coming back and coming back extremely stronger.

Just to give one set of numbers for you today. Columbus [ Coates ], it's one galvanizing line ready for extra_wide exposed parts that produce today something between 280,000 and 300,000 tons a year. The line itself is able as is to produce 450,000 tons, just by putting more throughput through the line, and that is coming.

And the site itself is perfect to double in terms of the capacity in that specific side because we have room to put another line side-by-side with the existing one to double from 450,000 to 900,000 tons. That's in a single site, and we don't need to invest to put the new line because we have idle capacity in Dearborn. The downstream Dearborn is the most modern galvanized steel plant in the world that was built in 2013 by Severstal and acquired by AK Steel, and then we acquired AK Steel. So Dearborn is ready for more.

Middletown, same thing. Rockport, Rockport needs to be visited. It's all robotic, it's all automated. It has been like that for at least another 1 or 1.5 decades. So it's there. And New Carlisle that used to be called I/N Tek and I/N Kote by Inland and Nippon Steel long ago, is pretty modern and pretty well equipped to produce not only a hot-dip galvanized and galvan mill, but also electrogalvanized as well as Middletown.

So we have -- and that's just exposed. If you go to nonexposed high end, no exposure, we have Cleveland, is the -- Cleveland Works is the most technologically advanced mill to produce high-strength alloys for the structure of cars here in the United States, and we have been doing that, but we have capacity for more. So that's prevalent everywhere. Indiana Harbor, Burns Harbor our joint venture with [ Worthington Steel ] is [ working ] same thing.

So that's 9 plants ready to grow as this or adding capacity as needed in the next 3, 4, 5, 6 years. So this movement that was initiated by President Trump, that will percolate for the next 5, maybe 10 years; will be all supported by Cleveland-Cliffs. And I'm explaining to you the capacity.

So I'm not going to go into this little details on how much more the contract or this and that. These things are coming out as a wave of new business that we are ready to take right now.

Sorry for the long answer. It was a good question. I decided to use it to explain details that probably are not well understood. But I hope after I made that explanation, at least generate more questions that will keep us helping clarify the subject.

Great. And then talking about the other opportunity that just came off for Cliffs on the rare earths space, are there any details or early details that you have in terms of the type of mineralization, rare earths mineralization that you may have? What type of minerals potentially you could be producing? And also, is there a timetable for a feasibility or prefeasibility study or preliminary economic analysis -- assessment, sorry?

I don't think that I want to talk about [ dysprosium ] or terbium or cerium or [ lanthanum ] or neodymium or praseodymium in this call. But I am a chemistry person. So I would love to, but I don't think that would be a good thing for us today, Carlos. Let's take this offline and let's discuss.

The important thing is that they are there. We found them there. And we want to make it viable. We really believe that we have potential there, and that will be good for Michigan, for the upper Peninsula primarily. And there's even one site in Minnesota that we would go. Minnesota is not very friendly to us, but we still investigate there. But we definitely will start in Michigan in the upper peninsula because we love the upper peninsula.

Our next question is coming from Mike Harris of Goldman Sachs.

Okay. Let's try this again. Hopefully, you can hear me this time.

Very well, Mike.

Just wanted to follow up on the electrical steel award that you highlighted, and just to kind of help us, how should we think about that? Is that more of a kind of a onetime opportunity? Or is this like the first of [ CDEC ]?

It's a onetime opportunity, Mike, but it's a multiyear onetime opportunity. The U.S. government, Department of War made the decision to putting storage, a safety reserve, strategic inventory of this type of materials that we produce. So we are going to build that inventory together with the Department of War.

And we are very proud of this partnership. It's extremely good in terms of economic terms. And in -- the long-term viability, of course, we're going to prioritize that because it's national security. And it will take years to finish.

And this probably is this first move into a direction that it's clear that the Trump administration is taking in terms of protecting the country with strategic inventories of things that could be under attack in a moment that's not very peaceful in the world.

So it's all good, and we are proud of our partnership with the U.S. government and particularly with this specific deal.

Okay. Okay. That helps. And then just a follow-up to it, and Celso, I think, just a few minutes ago, someone asked a question around the cost reduction, and you kind of pointed out the track record.

And I guess I was just curious what we're witnessing here, is that just you guys now have an opportunity to take out maybe stranded costs from the acquisitions? Or are we seeing the benefits from, I don't know, some process improvement or technological advances? Just kind of help understand -- help me understand what we're witnessing with the cost reduction effort here.

Yes. Sure, Mike. Yes, I think over time, we've been proactive in terms of optimizing the footprint. We became a steel company in 2020, if you remember. We acquired AK Steel, we closed that deal on March 13 to 2020 in the middle of the pandemic. And then we doubled down, and we acquired the ArcelorMittal USA assets in the same year closed in December 9 of that year.

And for the subsequent years thereafter, we became a major steel company sort of overnight, and it took time to optimize the footprint. It came with a lot of assets. Many of them were very good, some of them weren't so great. So over the last few years, we've been prioritizing optimizing the operations across all of our assets. And that's what's really driven the accomplishment on the cost side. And this year was really the completion of those efforts.

Thank you. That brings us to the end of today's question-and-answer session. I'd like to thank everyone for their participation today. You may disconnect your lines and log off at this time. Enjoy the rest of your day.