CLF fundamentals

$Cleveland Cliffs(CLF.US)'s processes, business model, and strategic positioning are different from its peers.

1. Process Routes: Long Process vs. Short Process

Key Differences:

• CLF is highly vertically integrated, controlling the entire chain from iron ore to finished steel, while Nucor relies on external scrap steel.
• CLF's BF-BOF process is more suitable for high-end steel products like automotive sheets (requiring low impurities), but its carbon emissions are higher than EAF processes.

2. Raw Material Self-Sufficiency

• CLF:
  • The only steel company in North America that produces its own iron ore, supplying nearly 20% of U.S. iron ore demand through mines in the Great Lakes region, ensuring cost control.
  • Comparison with peers: Nucor relies entirely on scrap steel, while U.S. Steel partially depends on imported iron ore.
  • $US Steel(X.US) and Stelco purchase iron ore/pellets from CLF, while $Algoma Steel(ASTL.US) buys blast furnace pellets from CLF.
  • Mexican steel companies like Ternium México and other North American blast furnace steelmakers import pellets from CLF when supplies from Brazil or Australia are tight.

The Great Lakes region is the primary iron ore production area in the U.S., with mines in Michigan and Minnesota shipping over 90% of the nation's iron ore output via the Great Lakes transportation system. For example, in January 2025, Great Lakes iron ore shipments totaled 2.5 million tons, dominating domestic supply.

Assuming domestic production meets 20% of demand and the Great Lakes region supplies 90% of domestic output, the Great Lakes directly satisfy about 18% of U.S. iron ore demand, with CLF owning nearly half of the mining areas.

Advantage: When iron ore prices fluctuate, such as the surge in 2021, CLF's profits are exceptionally high.

3. Product Positioning and Customers

Key Differences:

• CLF focuses on high-value flat-rolled steel (especially for the automotive industry), requiring strict process control, while Nucor primarily produces construction long products.

4. Environmental and Emission Reduction Technologies

• CLF:
  • Invests in carbon capture (CCUS) and hydrogen-based ironmaking trials (e.g., MIDREX technology), but BF-BOF processes face significant emission reduction challenges.
  • Compared to Nucor: EAF carbon emissions per ton are only 1/3 of BF-BOF, making it easier to meet ESG requirements.

Challenge: CLF must balance high-end product demand with carbon neutrality goals.

5. Strategic Acquisitions and Capacity Layout

• CLF:
  • Acquired AK Steel in 2020 (enhancing automotive sheet technology) and ArcelorMittal's U.S. operations, becoming North America's largest flat-rolled steel producer.
  • Compared to U.S. Steel: Acquired by Nippon Steel in 2023, shifting to a global strategy; Nucor expands by building small EAF plants.

Differentiation Strategy: CLF integrates upstream resources through acquisitions rather than simply expanding production.

Summary: CLF's Core Competencies

1. Vertical Integration: The only U.S. steelmaker controlling the full chain from iron ore to steel production.
2. High-End Product Barriers: Automotive steel requires complex processes and long customer certification cycles.
3. Resistance to Iron Ore Price Volatility: Self-supply reduces raw material risks and allows selling to peers.

Weakness: High carbon emissions from processes create greater transition pressure than EAF companies.