In a broad and colorful chat with five steel industry analysts, Cleveland-Cliffs CEO Lourenco Goncalves said the company’s use of scrap has increased and later this decade it may look to increase. the capacity of its electric arc furnace (EAF) rather than paying for a blast furnace reline.

In his opening remarks, Lourenco Goncalves said of the Cleveland-based company’s record earnings in 2021: “With this record annual profitability, we are putting the cash we have generated to good use. We reinvested in our business, acquired the leading scrap metal processor in North America. »

The 2021 acquisition of Detroit-based Ferrous Processing & Trading Co. (FPT) featured in several remarks made by CEO Lourenco Goncalves and Cleveland-Cliffs Chief Financial Officer (CFO) Celso Goncalves.

The CFO commented, “We have offset our coke consumption by increasing the use of HBI (hot briquetting iron) in our blast furnaces and increasing the percentage of scrap in the charge of our BOFs (basic oxygen furnaces). ). »

CEO Lourenco Goncalves touted the environmental, social and corporate governance (ESG) aspects of the transaction, saying, “Another important ongoing issue for the future of Cleveland-Cliffs is our commitment to ESG. This was evident with our purchase of FPT, the national leader in premium scrap metal. »

Lourenco Goncalves also described the steelmaker’s ownership of FPT as a competitive advantage. “Since closing the deal on November 18, we have taken significant steps, securing a number of additional sources of prime scrap metal removal, including the nation’s largest auto stamping plant. This particular stamping plant alone generates over 150,000 tons of premium grade scrap per year. Our agreement replaced an incumbent scrap company, which had maintained this stamping plant for decades, even before this scrap company was acquired by a mini-factory several years ago.

Lourenco Goncalves continued during the conference call: “Our agreement was made possible thanks to a convincing proposal. This car manufacturer buys steel, mainly in Cleveland-Cliffs, and we can now reinject its scrap directly into our steel mills. It’s not just about recycling steel. It’s a real closed loop. A closed loop is a key part of our automotive customers’ environmental strategy, as well as a key part of our own Cleveland-Cliffs environmental strategy.

Despite his roots in the mining, processing, and shipping of Minnesota’s iron chain, Lourenco Goncalves described a steel future moving away from some of the traditional technology. “On the carbon emissions side, we continue to reduce our coal and coke consumption by increasing the use of HBI as a significant portion of the feedstock in our blast furnaces. While our flagship direct reduction plant in Toledo was originally built to supply third-party EAFs in HBI, this HBI is now used exclusively in-house in Cleveland-Cliffs, with the vast majority in our blast furnaces, playing a pivotal role in lowering both our coke rate and our CO2 emissions.

Scrap is also part of the equation, he said. “With the use of additional scrap in our BOFs, our iron ore requirements are no longer as high as before and we no longer need to operate our mines from end to end. We will be idling all production at our Northshore mine beginning in the spring, at least through the fall and possibly beyond. At Northshore, no production, no shipments, no royalty payments,” he said of the Silver Bay, Minnesota facility.

“Our strategy of stretching hot metal by adding increased amounts of scrap to BOFs is working extremely well,” Lourenco Goncalves continued. “With more scrap in the BOFs, we need fewer tonnes of hot metal to produce the same tonnage of liquid steel. As a result, the Northshore idle could last longer than currently expected.

While many of the company’s current plants use blast furnace/BOF technology, Lourenco Goncalves said the use of more EAF technology is likely for Cleveland-Cliffs. “EAFs are still not able to demonstrate that they can be competitive and produce the full specification that automakers demand,” he noted. “A blast furnace reline is a capital-intensive undertaking, although fully expected in our multi-year projections. In some cases, the capital requirements of a new FEA versus avoiding reinvestment in a blast furnace reline and its associated supply chain could prove close to a washout. If and when this happens, washing or better, we might consider an EAF as a replacement for a blast furnace reline in the future.

BOF technology is not going away completely, the CEO also clarified. “You don’t reduce emissions [by] build EAFs. You reduce emissions [by] melt scrap metal, instead of melting 4% carbon pig iron. And that’s what we do in our steelworks. FPT is the key for this.

He continued, “My thing about EAFs is that when it comes time to rely on blast furnaces, it’s very expensive. We can, instead of relining the blast furnace, set up the EAF to melt the scrap. And by the way, we have a lot of scrap because we own a scrap business. When is this going to happen? I don’t know, in the future. Certainly not in 2022. I don’t believe it will be in 2023 either.”

After his two years in the mill-buying and scrap-processing business, Lourenco Goncalves has expressed his frustration with analysts or media that continue to refer to Cleveland-Cliffs as a mining company. “We’re still called an iron ore company from time to time,” he remarked. “How many years does it take them to learn that we are no longer an iron ore company? »

Two other topics addressed by Lourenco Goncalves included the rise of electric vehicle sales in the United States and the notion of a more consolidated steel industry in the country.

Lourenco Goncalves, who was unapologetic about high steel prices, also championed consolidation in the sector. “We completely changed the industry, 100%,” he says of the Cleveland-Cliffs plant’s buying strategy. “We laid the foundation for everyone here in the United States to make a lot of money. Even analysts recognize that without our actions in consolidating this industry, no steel mill, service center and many others throughout the supply chain would have made money, as we all have. silver in 2022. So, for you who are listening to this call for names in disguise, you are welcome. I got you this. So that’s the greatest synergy we’ve created, not just for ourselves, but for the entire steel industry.

When it comes to electric vehicles, Lourenco Goncalves says Cleveland-Cliffs is well positioned for any changes brought about by the shift from internal combustion engine (ICE) to battery power. “My strategy on the environment is to support those who really reduce emissions,” he commented, saying that the American steel industry only accounts for 1% of carbon emissions in the United States.

ICE vehicles, on the other hand, “came out [into] the atmosphere 29% of total CO2 that pollutes the air here in the United States,” said Lourenco Goncalves. Cleveland-Cliffs, he said, “are unique in producing grain-oriented electrical steels for use in transformers. So this is for us. We are the only one, to date, to produce non-oriented electrical steels that go into motors. There’s a lot going on in the automotive industry in terms of changing models, redesigning and re-specifying materials for these new electric vehicles. We are the suppliers of all of them. It’s still that Cleveland-Cliffs steel.

The full 23-page transcript of the Cleveland-Cliffs 2021 results call can be found on this webpage.