The UK is still pressing for “full implementation” of its trade deal with the US, Keir Starmer said as he downplayed the prospect of a breakthrough on steel tariffs during Trump’s visit to Scotland https://t.co/ldcjIFx4Dr ...

Group 1 - Steel Dynamics (NASDAQ: STLD) shares have gained 6% over the past year, but remain below post-election highs due to concerns about weaker market conditions offsetting benefits from steel tariffs [1] - The company has over fifteen years of experience in making contrarian bets based on macro views and stock-specific turnaround stories to achieve outsized returns with a favorable risk/reward profile [1]

Core Viewpoint - Cleveland-Cliffs stands to benefit significantly from President Trump's recent steel tariff increase, which has led to a notable rise in its stock price, despite the company's recent financial struggles [1][4]. Group 1: Tariff Impact - President Trump reinstated a 25% tariff on all foreign steel on February 10, 2024, and subsequently doubled it to 50% effective June 4, 2024 [2][4]. - The new tariff regime includes strict reporting requirements for foreign importers, with severe penalties for non-compliance, which is expected to favor American steel producers like Cleveland-Cliffs [4]. - The aggressive tariff strategy aims to bolster American manufacturing, positioning Cleveland-Cliffs as a key beneficiary due to its status as the largest producer of flat-rolled steel in the U.S. [4]. Group 2: Financial Performance - Cleveland-Cliffs has experienced declining annual revenue over the past two years, reporting a net loss of $754 million on nearly $19.2 billion in revenue for 2024 [5]. - The company has been unprofitable in four of its last five quarters, indicating ongoing financial challenges despite the favorable tariff environment [5]. Group 3: Market Sentiment and Risks - Investor enthusiasm for Cleveland-Cliffs has surged, with the stock trading over 30% higher following the tariff announcement, reflecting confidence in the company's potential to capitalize on the new tariffs [1]. - However, there are concerns regarding the sustainability of the 50% tariff, as negotiations with countries like Mexico could lead to exemptions that would diminish Cleveland-Cliffs' competitive advantage [6][8]. - The potential for tariff reductions in future negotiations raises uncertainty about the long-term benefits for Cleveland-Cliffs and the broader American steel industry [7][8].

Core Viewpoint - Cleveland-Cliffs' stock price has declined significantly due to new trade negotiations that may reduce steel tariffs on imports from Mexico, raising concerns about the company's profitability and market position [1][4]. Group 1: Steel Tariffs and Trade Negotiations - New trade negotiations between the U.S. and Mexico could potentially roll back the recently announced 50% tariffs on steel imports from Mexico [1][3]. - The proposed changes would allow a specific quota of steel imports from Mexico to enter the U.S. duty-free or at a reduced tariff rate, while imports exceeding this quota would still incur the 50% tariff [3]. Group 2: Impact on Cleveland-Cliffs - The mere speculation of a tariff reduction for Mexican steel has shaken investor confidence in Cleveland-Cliffs, as it raises the possibility of similar negotiations with other countries [4]. - Cleveland-Cliffs has been relying on tariff policies to regain profitability after incurring a loss of $754 million in the previous year [5]. - The company faces additional challenges from domestic competition, particularly from U.S. Steel, which will soon receive financial backing from Japan's Nippon Steel [5].

Core Viewpoint - The U.S. has implemented a 50% tariff on imported steel and aluminum, creating significant opportunities for domestic producers like Cleveland-Cliffs Inc, Nucor Corp, and Steel Dynamics Inc [1][2]. Group 1: Impact of Tariffs on Companies - Cleveland-Cliffs Inc experienced a 25.2% gain in early trading following the tariff announcement, allowing the company to raise prices by $200-300 per ton while remaining competitive [3][4]. - Nucor Corp is expected to boost its EBITDA margins to the 18-20% range over the next 12-18 months due to its low-cost electric arc furnace model and reduced import competition [4]. - Steel Dynamics Inc's diversification into aluminum production is now advantageous, as rising tariffs on both steel and aluminum enhance its pricing power [5]. Group 2: Broader Market Implications - Investors may consider steel-focused ETFs like the VanEck Steel ETF and the SPDR S&P Metals and Mining ETF for diversified exposure to the steel sector [6]. - While current gains are significant, there are concerns about potential policy changes by late 2025 due to structural supply gaps and midterm politics [6].

Financial Data and Key Metrics Changes - In Q1 2025, net sales totaled $280.5 million, a sequential increase of $40 million or 17% [17] - Net income for the quarter was $1.3 million or $0.03 per diluted share, while adjusted net income was $3.2 million or $0.07 per diluted share [18] - Adjusted EBITDA reached $17.7 million, a sequential increase of $9.4 million [18] - Manufacturing costs declined by $12.5 million sequentially due to increased cost absorption and lower maintenance costs [19] Business Line Data and Key Metrics Changes - Overall shipments increased by 17% compared to the previous quarter, driven by higher industrial, automotive, and energy shipments [10] - Shipments to industrial customers rose by 33% sequentially, while energy shipments improved by 24% [11][12] - Automotive shipments increased by 9% sequentially, primarily due to seasonality [13] - Aerospace and defense shipments decreased due to production startup challenges but are expected to recover in the second quarter [14] Market Data and Key Metrics Changes - The order backlog increased approximately 50% from the same period last year, reflecting growing demand for U.S.-produced steel [7] - Lead times for SBQ bars and seamless mechanical tubing products currently extend to ten weeks [11] - The energy market is seeing increased demand as customers shift from imports to domestic sourcing [35] Company Strategy and Development Direction - The company plans to invest approximately $5 million in safety management systems and equipment upgrades in 2025 [8] - Capital allocation strategy prioritizes strategic investments for long-term growth and ongoing share repurchase programs [15] - The company remains focused on executing its business strategy while prioritizing safety and customer service [16] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism despite macroeconomic uncertainties, citing a strong U.S.-based business model [16] - The company anticipates second-quarter adjusted EBITDA to be higher than in the first quarter, with modest increases in shipments expected [26] - Management is confident in meeting the 2025 revenue goal of approximately $30 million from vacuum arc remelt products [15] Other Important Information - The company made $52.6 million in required pension contributions in Q1 2025, with expectations of reduced future contributions [20] - Cash flow for the first quarter was an outflow of $38.9 million, primarily due to pension contributions [21] - The company repurchased 395,000 shares for $5.6 million in Q1 and had $96 million remaining under its share repurchase authorization as of April [25] Q&A Session Summary Question: How much of the volume boost in Q1 2025 is due to pull forward demand related to tariffs? - Management indicated that very little of the shipment increase was due to tariff hedging, as most orders were placed in Q4 2024, and the tariffs did not take effect until April [34] Question: What is the outlook for the energy market and customer demand? - Management expects continued demand growth in the energy sector as customers seek domestic sourcing, despite some inventory overhang from imports [35] Question: Can you provide details on the aerospace and defense customer manufacturing startup challenges? - Management noted that a new facility faced commissioning difficulties but expects to see orders from this facility later in the year as progress is made [41]

Financial Data and Key Metrics Changes - In the first quarter, net sales totaled $280.5 million, a sequential increase of $40 million or 17% [16] - Net income for the first quarter was $1.3 million or $0.03 per diluted share, while adjusted net income was $3.2 million or $0.07 per diluted share [18] - Adjusted EBITDA was $17.7 million, a sequential increase of $9.4 million, driven by higher shipments and lower manufacturing costs [19] Business Line Data and Key Metrics Changes - Overall shipments increased by 17% compared to the previous quarter, with significant increases in industrial (33%) and energy (24%) shipments, while aerospace and defense shipments decreased due to production startup challenges [9][10][12] - Automotive shipments improved by 9% sequentially, primarily driven by seasonality [12] - The order backlog increased approximately 50% from the same period a year ago, reflecting strong demand for U.S. produced steel [6] Market Data and Key Metrics Changes - Shipments to industrial customers increased significantly, driven by distributors replenishing their inventory [10] - Energy shipments improved despite a flat rig count, indicating market share gains in specific product categories [11] - Aerospace and defense shipments are expected to recover in the second quarter as the industry addresses supply chain challenges [13] Company Strategy and Development Direction - The company is focused on capitalizing on the growing demand for domestic steel and has a strong balance sheet to support its strategy [4][6] - Investments in safety management systems and equipment upgrades are planned for 2025, with a budget of approximately $5 million [7] - The capital allocation strategy prioritizes strategic investments for long-term growth and includes an ongoing share repurchase program [14] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the trade environment and macroeconomic landscape, emphasizing the company's U.S.-based business model [15] - The company anticipates second quarter adjusted EBITDA to be higher than the first quarter, with expected increases in shipments and operational performance [27][28] - Management remains committed to delivering quality products while driving profitability [29] Other Important Information - The company made $52.6 million in required pension contributions in the first quarter, with expectations of a significant reduction in future contributions [20] - Cash flow for the first quarter was an outflow of $38.9 million, primarily due to pension contributions [21] - The company received $11.9 million in government funding as part of a $99.75 million agreement to support munitions production [23][24] Q&A Session Summary Question: How much of the volume boost in Q1 is due to pull forward demand related to tariffs? - Management indicated that very little of the shipment increase was related to hedging against tariffs, as most orders were placed in Q4, and the tariffs took effect in April [34][35] Question: What is the outlook for the energy market and customer demand? - Management expects continued demand increase in the energy sector as customers seek domestic sourcing, despite some inventory overhang from foreign imports [36][37] Question: Can you provide details on customer manufacturing startup challenges in aerospace and defense? - Management noted that a new facility faced commissioning difficulties but expects progress and increased orders later in the year, along with new inquiries for munitions grades [41][42]