Cleveland-Cliffs NYSE: CLF said it returned to positive free cash flow in the second quarter of 2026 and expects a substantially stronger second half of the year, driven by higher steel prices, improved automotive demand, lower costs and higher shipment volumes.
Chairman and CEO Lourenco Goncalves told analysts that the company’s second-quarter results showed “tangible evidence” of the earnings recovery management has been forecasting. Cleveland-Cliffs reported adjusted EBITDA of $286 million in the quarter, which President and CFO Celso Goncalves said was the company’s best quarterly result in two years. The figure was roughly triple the company’s first-quarter adjusted EBITDA, according to management.
“During the second quarter, we returned to positive free cash flow and tripled our adjusted EBITDA from the first quarter,” Lourenco Goncalves said. “While the second quarter represents meaningful progress, it still understates where this company is headed over the coming quarters.”
Company Guides for Sharp EBITDA Improvement in Third Quarter
Cleveland-Cliffs issued third-quarter adjusted EBITDA guidance of approximately $575 million, which Celso Goncalves said would represent the company’s strongest quarter in three years. Management said the expected improvement reflects a convergence of higher prices, lower costs and increased shipping volumes.
Second-quarter steel shipments were just over 4 million tons, down sequentially because of maintenance outages and stronger automotive demand, which management said carries longer lead times. Cleveland-Cliffs expects third-quarter shipments to exceed 4.3 million tons, citing a strong order book and extended backlogs.
Pricing also improved during the second quarter. Celso Goncalves said the company’s average selling price increased by $76 per ton from the prior quarter, helped by pricing lags beginning to flow through and a richer product mix tied to automotive demand. He said Cleveland-Cliffs expects its average selling price to rise by another $55 per ton in the third quarter.
On costs, management said maintenance outages and inventory lag lifted unit costs in the second quarter, but those headwinds are expected to ease. Celso Goncalves said unit costs are expected to decline by $10 per ton in the third quarter, while Lourenco Goncalves said further cost improvements are expected in the fourth quarter as production levels rise and mill schedules become more stable.
The company also said it expects fourth-quarter adjusted EBITDA to exceed third-quarter levels, assuming the current hot-rolled coil futures curve. Management said this expectation already factors in normal holiday-related seasonal slowdowns.
Automotive Demand Helps Lift Shipments and Product Mix
Management highlighted improving automotive steel demand as a major contributor to the company’s outlook. Lourenco Goncalves said Cleveland-Cliffs’ shipments to automotive customers during the second quarter were the highest in two years. He also said finishing lines that had been running at suboptimal utilization levels over the last several years are now operating at healthier levels, with a favorable impact on costs.
Cleveland-Cliffs said it has received top supplier awards this year from both Toyota and General Motors. Lourenco Goncalves said the company remains “the supplier of choice for the automotive sector in the United States.”
During the question-and-answer session, Lourenco Goncalves said about half of the expected 300,000-ton shipment increase in the third quarter would come from the improved automotive market, with the other half coming from non-automotive flat-rolled steel.
Asked about the potential restart of the Dearborn blast furnace, Goncalves said the company has the capacity and technology to supply more automotive steel, but would need stronger conviction from automakers that production will remain in the United States. He said the Dearborn furnace represents “more than 2 million tons” of potential capacity.
Contract Resets Seen as 2027 EBITDA Opportunity
Cleveland-Cliffs said upcoming fixed-price contract resets could provide a significant lift in 2027. Celso Goncalves said the company expects a $500 million year-over-year EBITDA improvement from resetting a large portion of its fixed-price contracts at higher levels.
Lourenco Goncalves said negotiations for non-automotive contracts begin in earnest in the second half of the year and typically conclude by late November or early December. He said last year’s contracts were negotiated against a much lower pricing backdrop, with prevailing prices around $800 per ton or less, compared with recent levels around $1,150 per ton or more.
“The expectation that these contracts will reset for much higher prices are just a foregone conclusion,” he said.
On automotive contracts, Goncalves said Cleveland-Cliffs plans to be more selective and seek higher prices, citing its position with U.S. automakers and tighter trade enforcement.
Debt Reduction Remains Capital Allocation Priority
Celso Goncalves said Cleveland-Cliffs generated positive free cash flow in the second quarter after two years of negative free cash flow and expects the trend to continue. He said second-quarter working capital was a release of about $55 million, driven by reduced inventory and a slight build in accounts payable, partially offset by accounts receivable.
The company said it is now under contract on all major property sales, with earnest money in hand in each case. Cleveland-Cliffs expects the bulk of the $400 million in proceeds from those sales to arrive in the second half of 2026.
Management said debt paydown is the company’s top capital allocation priority. Celso Goncalves said free cash flow and asset-sale proceeds will be used to reduce debt, with the goal of reaching leverage below 2.5 times by this time next year if current market conditions hold.
“Until we get to our leverage target, we’re not going to prioritize any other type of capital allocation,” he said.
Trade Policy, Stelco and Strategic Discussions
Lourenco Goncalves repeatedly emphasized the importance of U.S. trade policy, particularly Section 232, which he called “the single most effective industrial policy implemented in our country in a generation.” He credited trade enforcement with supporting domestic steel utilization, manufacturing investment and automotive reshoring.
The company also discussed Canada and Stelco, which Cleveland-Cliffs acquired. Lourenco Goncalves said Stelco’s results have improved and are contributing to the company’s second-half guidance. He said Canadian hot-rolled steel pricing has improved as the pricing gap with the U.S. has narrowed, but galvanized steel in Canada remains under pressure. He warned that the competitiveness of Stelco’s galvanizing lines in Hamilton could be at risk without further trade protections.
On strategic initiatives, Celso Goncalves said offers received for assets such as HBI and FPT have fallen short of Cleveland-Cliffs’ value threshold. He said discussions with POSCO remain friendly and ongoing, but Cleveland-Cliffs does not have a deadline and is not under pressure to complete a transaction.
The company also noted that it has begun negotiations with the United Steelworkers union to renew its collective bargaining agreement. Lourenco Goncalves said the process is off to “a constructive and productive start.”
Cleveland-Cliffs also announced that Celso Goncalves has been appointed to the company’s board of directors as president and CFO. Lourenco Goncalves said the move reflects the role Celso has already been playing and marks “the early stages of a transition in leadership,” while adding that he plans to continue leading the company for several more years.
About Cleveland-Cliffs (NYSE:CLF)
Cleveland-Cliffs Inc is a leading North American producer of iron ore pellets and flat-rolled steel products. Tracing its roots to 1847, the company has evolved from an iron-ore mining concern in the Great Lakes region into a fully integrated steelmaker. Today, Cleveland-Cliffs operates iron ore mining complexes in Michigan and Minnesota as well as steelmaking and finishing facilities across the United States.
The company's integrated platform begins with direct control of key raw materials, including iron ore and scrap, and extends through every stage of steel production.
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