Item 1. Business
Item 1. Business
Introduction
Cliffs is the largest flat-rolled steel producer in North America. Founded in 1847 as a mine operator, we are also the largest manufacturer of iron ore pellets in North America. We are vertically integrated from mined raw materials, direct reduced iron and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling and tubing. We are the largest supplier of steel to the automotive industry in North America and serve a diverse range of other markets due to our comprehensive offering of flat-rolled steel products. Headquartered in Cleveland, Ohio, we employ approximately 26,000 people across our operations in the United States and Canada.
On November 18, 2021, we completed the acquisition of FPT, a leading prime ferrous scrap processor in the U.S. These operations consist of 22 scrap processing facilities, primarily in the Midwest region of the United States. The FPT Acquisition bolsters our raw materials position by securing access to prime scrap, which will allow us to optimize productivity at our existing EAFs and BOFs.
Competitive Strengths
As the largest flat-rolled steel producer in North America, we benefit from having the size and scale necessary in a competitive, capital intensive business. Our sizeable operating footprint provides us with the operational leverage, flexibility and cost performance to achieve competitive margins throughout the business cycle. We also have a unique vertically integrated profile from mined raw materials, direct reduced iron, and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling and tubing. This positioning gives us both lower and more predictable costs throughout the supply chain and more control over both our manufacturing inputs and our end product destination.
Our legacy business of producing iron ore pellets, which is our primary steelmaking raw material input, is another competitive advantage. By controlling our iron ore pellet supply, our primary steelmaking raw material feedstock can be secured at a stable and predictable cost and not be subject to as many factors outside of our control.
The FPT Acquisition gives us a competitive advantage in sourcing prime scrap, as we expect to leverage our long-standing flat-rolled automotive and other customer relationships into recycling partnerships to further grow our prime scrap presence. Additionally, FPT has 22 facilities located primarily in the Midwest near our steel facilities, which gives us an increased advantage in logistics.
We are also the largest supplier of automotive-grade steel in the U.S. Compared to other steel end markets, automotive steel is generally higher quality and more operationally and technologically intensive to produce. As such, it often generates higher through-the-cycle margins, making it a desirable end market for the steel industry. Given the strong demand and market environment in 2021, we were able to significantly improve our fixed price contracts, which should benefit us throughout 2022. Demand for our automotive-grade steel is expected to increase with pent-up automotive demand as a result of the semiconductor shortage. Automotive customers have requested higher volumes in contract negotiations compared to the prior year, which we believe is a sign of the semiconductor shortage easing. With our continued technological innovation, as well as leading delivery performance, we expect to remain the leader in supplying this industry.
We are the only producers of both GOES and NOES in the U.S. The recently passed Infrastructure and Jobs Act of 2021 in the U.S. provides funding to be used for the modernization of the electrical grid and the infrastructure needed to allow for increased EV adoption, both of which require our electrical steels. As a result, with increased demand for both transformers and motors for EVs, we expect to benefit from this position in what is currently a rapidly growing market.
We believe we offer the most comprehensive flat-rolled steel product selection in the industry, along with several complementary products and services. A sampling of our offering includes AHSS, hot-dipped galvanized, aluminized, galvalume, electrogalvanized, galvanneal, HRC, cold-rolled coil, plate, tinplate, GOES, NOES, stainless steels, tool and die, stamped components, rail, slab and cast ingot. Across the quality spectrum and the supply chain, our customers can frequently find the solutions they need from our product selection.
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We are the first and the only producer of HBI in the Great Lakes region. Construction of our Toledo direct reduction plant was completed in the fourth quarter of 2020 and reached full run-rate nameplate annual capacity of 1.9 million metric tons during the middle of 2021. From this modern plant, we produce a high-quality, low-cost and low-carbon intensive HBI product that can be used in our blast furnaces and as a productivity enhancer in our BOFs and EAFs as a scrap alternative. We can use HBI to stretch our hot metal production, lowering carbon intensity and reliance on coke. As a result of our internal usage of HBI, coupled with our ongoing evaluation of coke use strategies, we idled our coke facility at Middletown Works during the third quarter of 2021 and we intend to permanently idle our Mountain State Carbon coke plant in the second quarter of 2022. With increasing tightness in the scrap market and our own internal needs for scrap and metallics, we expect our Toledo direct reduction plant to support healthy margins for us going forward.
Strategy
Maximize Our Commercial Strengths
We offer a full suite of flat steel products encompassing all steps of the steel manufacturing process. We have an industry-leading market share in the automotive sector, where our portfolio of high-end products delivers a broad range of differentiated solutions for this highly sought after customer base.
As a result of our exposure to these high-end markets, we have the highest fixed price contractual volumes in our industry. Approximately 45% of our volumes are sold under these contracts. These contracts reduce volatility and allow for more predictable through-cycle margins. Our fixed contract values are expected to dramatically improve in 2022 compared to 2021.
We are also proponents of the “value over volume” approach in terms of steel supply. We take our leadership role in the industry very seriously and intend to manage our steel output in a responsible manner. In the fourth quarter of 2021, we elected to pull forward repairs and maintenance to match automotive demand that was negatively impacted by the semiconductor shortage. Going forward, we will continue to use our operational flexibility to align with our “value over volume” approach in terms of steel supply.
Optimize Our Fully Integrated Steelmaking Footprint
We are a fully-integrated steel enterprise with the size and scale to achieve margins above industry averages for flat-rolled steel. Our focus remains on both maintaining and enhancing our cost advantage while also lowering carbon emissions. The combination of our ferrous raw materials, including iron ore, scrap, and HBI, allows us to do so relative to peers who must rely on more unpredictable and unreliable raw material sourcing strategies.
In 2022, we intend to use more scrap and HBI in our melting processes to stretch our production of liquid pig iron from traditional inputs. The use of higher amounts of these raw materials in our blast furnaces ultimately boosts liquid steel output, which will reduce coke needs and lower carbon emissions from our operations. With our acquisition of FPT, we have ample access to scrap along with internally sourced HBI.
Expand our Ferrous Scrap Recycling Presence
Throughout our entire footprint, we consume a very significant amount of scrap in our EAFs and BOFs, more than half of which can now be obtained through internal sources. Prime scrap is a byproduct of industrial manufacturing. As manufacturing in the U.S. has moved offshore and yields have improved, prime scrap supply has been shrinking for the last 50 years. As the steel industry continues to increase its focus on decarbonization and brings new flat-rolled EAF capacity online over the next five years, securing additional access to prime scrap will continue to be an important strategic initiative.
Our expansion in this area began with the FPT Acquisition and will continue to grow by pairing FPT's processing capabilities with our long-standing customer relationships. As the largest supplier of flat-rolled steel in North America, we are the largest source of the steel that generates prime scrap in manufacturing facilities. Based on this, we seek to leverage our long-standing flat-rolled automotive and other customer relationships into recycling partnerships to grow our prime scrap presence. The FPT Acquisition allows us to optimize productivity at our existing EAFs and BOFs, as we have no current plans to add additional steelmaking capacity.
Advance our Participation in the Green Economy
We are seeking to expand our customer base with the rapidly growing and desirable electric vehicle market. At this time, we believe the North American automotive industry is approaching a structural inflection point, with the adoption of electrical motors in passenger vehicles. As this market grows, it will require more advanced steel
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applications to meet the needs of electric vehicle producers and consumers. With our unique technical capabilities and leadership in the automotive industry, we believe we are positioned better than any other North American steelmaker to supply the steel and parts necessary to fill these needs.
We also have the right products to meet the growing demand for renewable energy as well as for the modernization of the U.S. electrical grid. We offer plate products that can be used in windmills, which we estimate contain 130 tons of steel per megawatt of electricity. In addition, panels for solar power are heavy consumers of galvanized steel, where we are a leading producer. We estimate solar panels consume 40 tons of steel per megawatt of electricity.
We are currently the sole producer of electrical steel in the U.S., which can facilitate the modernization of the U.S. electrical grid. Along with charging networks, electrical steels are also needed in the motors of electric vehicles.
Enhance our Environmental Sustainability
Our commitment to operating our business in a more environmentally responsible manner remains constant. One of the most important issues impacting our industry, our stakeholders and our planet is climate change. In early 2021, we announced our commitment to reduce GHG emissions 25% from 2017 levels by 2030. This goal represents combined Scope 1 (direct) and Scope 2 (indirect) GHG emission reductions across all of our operations.
Prior to setting this goal with our newly acquired steel assets, we exceeded our previous GHG reduction target at our legacy facilities six years ahead of our 2025 goal. In 2019, we reduced our combined Scope 1 and Scope 2 GHG emissions by 42% on a mass basis from 2005 baseline levels. Our goal is to further reduce those emissions in coming years.
Additionally, many of our steel assets have improved plant and energy efficiency through participation in programs like the U.S. Department of Energy’s Better Plants program, including their Better Climate Challenge and the EPA’s Energy Star program. With our longstanding focus on plant and energy efficiency, we aim to build on our previous successes across our newly integrated enterprise.
Our GHG reduction commitment is based on executing the following five strategic priorities:
• Developing domestically sourced, high quality iron ore feedstock and utilizing natural gas in the production of HBI;
• Implementing energy efficiency and clean energy projects;
• Investing in the development of carbon capture technology;
• Enhancing our GHG emissions transparency and sustainability focus; and
• Supporting public policies that facilitate GHG reduction in the domestic steel industry.
Improve Financial Flexibility
Given the cyclicality of our business, it is important to us to be in the financial position to easily withstand any negative demand or pricing pressure we may encounter. During the early stages of the COVID-19 pandemic, we were able to issue secured debt to provide insurance capital through the uncertain industry conditions caused by the pandemic. Now that business conditions have improved, allowing us to generate a healthy free cash flow during 2021 that is expected to continue into 2022, we have the ability to reduce debt, return capital to shareholders through our share repurchase program and make investments to both improve and grow our business. We have also been able to reduce our diluted share count and effectively return capital to shareholders via the cash redemption of our Series B Participating Redeemable Preferred Stock during the third quarter of 2021.
We anticipate that a strong market environment and significantly improved fixed price contracts will provide us ample opportunities to reduce our debt with our own free cash flow generation in the coming years. We will also continue to review the composition of our debt, as we are interested in both extending our average maturity profile and increasing our ratio of unsecured debt to secured debt, which we demonstrated by executing a series of favorable debt and equity capital markets transactions during February 2021. In addition, in June 2021, we redeemed all $396 million aggregate principal amount outstanding of our 5.750% 2025 Senior Notes. In December 2021, we increased our liquidity by amending our ABL Facility to increase the aggregate revolver commitments from $3.5 billion to $4.5 billion. These actions give us additional financial flexibility and will better prepare us to navigate more easily through
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potentially volatile industry conditions in the future. In January 2022, we redeemed all $294 million aggregate principal amount outstanding of our 1.500% 2025 Convertible Senior Notes.
Business Operations
We have a vertically integrated portfolio, which begins at the mining stage and goes all the way through the manufacturing of steel products, including stamping, tooling and tubing. We have the unique advantage as a steel producer of being fully or partially self-sufficient with our production of raw materials for steel manufacturing, which includes iron ore pellets, HBI, scrap and coking coal. We operate iron ore mines in Michigan and Minnesota, which produce iron ore pellets, and a direct reduction plant in Ohio that produces HBI. Additionally, with our recently completed FPT Acquisition, we now operate scrap facilities in Michigan, Ohio, Tennessee, Florida and Ontario. We also operate a coal mining complex in West Virginia and produce coke from our facilities in Ohio, Pennsylvania, Indiana and West Virginia.
We believe such vertical integration represents a sustainable business model that is in the best interest of all stakeholders and the surest way to secure a long-term competitive advantage. We are focused on securing additional access to prime scrap as the steel industry continues to increase its focus on decarbonization and with demand coming from new flat-rolled EAF capacity set to come online over the next five years. We continue to strive to operate responsibly and produce cleaner steel, which is the most recycled material on the planet. Additionally, our investment in the Toledo direct reduction plant, which was completed in the fourth quarter of 2020, also helps to support environmental stewardship, as the increased use of HBI in our blast furnaces stretches liquid steel output, which reduces coke needs and emissions. From a focus on key environmental processes, such as steel recycling and reduction of carbon emissions, to corporate and social responsibility, sustainability is central to our values and operations.
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The following table lists our steel producing and finishing properties, their location and their products and services:
Property Segment State/ Province Products and Services
Burns Harbor Steelmaking Indiana Hot-rolled, cold-rolled, and hot-dipped galvanized sheet and coke
Burns Harbor Plate and Gary Plate Steelmaking Indiana Carbon steel plate, high-strength low alloy steel plate, ASTM grades steel plate
Butler Works Steelmaking Pennsylvania Flat-rolled electrical and stainless steel, stainless and carbon semi-finished slabs
Cleveland Steelmaking Ohio Hot-rolled and hot-dipped galvanized sheet
Coatesville Steelmaking Pennsylvania Steel plate - carbon, high-strength low-alloy, commercial allow, military alloy, flame-cut
Columbus Steelmaking Ohio Hot-dipped galvanized steel
Conshohocken Steelmaking Pennsylvania Coiled and discrete plate, military alloy, commercial alloy, heat-treated carbon
Coshocton Works Steelmaking Ohio Flat-rolled stainless steel
Dearborn Works Steelmaking Michigan Carbon semi-finished slabs, hot-dipped galvanized, AHSS
Indiana Harbor Steelmaking Indiana Carbon semi-finished slabs, hot-rolled, cold-rolled and hot-dipped galvanized sheet
Kote and Tek Steelmaking Indiana Cold-rolled, hot-dipped galvanized and galvannealed, electrogalvanized coil
Mansfield Works Steelmaking Ohio Semi-finished hot bands, high chrome ferritic and martensitic stainless steels
Middletown Works Steelmaking Ohio Hot-rolled, cold-rolled, hot-dipped galvanized, aluminized sheet and coke
Piedmont Steelmaking North Carolina Plasma - cuts plate steel products into blanks
Riverdale Steelmaking Illinois Hot-rolled sheet
Rockport Works Steelmaking Indiana Cold-rolled carbon, coated and stainless steels
Steelton Steelmaking Pennsylvania Railroad rails, specialty blooms, flat bars and cast ingots
Weirton Steelmaking West Virginia Tinplate, cold-rolled sheet
Zanesville Works Steelmaking Ohio Electrical steels
Our Other Businesses primarily includes the Tubular Components and Tooling and Stamping properties that provide customer solutions with carbon and stainless steel tubing products, advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components, and complex assemblies.
Refer to Part I - Item 2. Properties for additional information.
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Customers and Markets
We primarily sell our products to customers in four broad market categories: automotive; infrastructure and manufacturing, which includes electrical power; distributors and converters; and steel producers, which consume iron ore and metallics and further process semi-finished materials. The following table presents the percentage of our net revenues to each of these markets during the year:
Market 2021 2020
Automotive 25 % 45 %
Infrastructure and manufacturing 27 % 15 %
Distributors and converters 38 % 13 %
Steel producers 10 % 27 %
The change in percentages of net revenues to each market in 2021 compared to 2020 was driven primarily by the AM USA Transaction, which increased overall sales to automotive customers, but reduced the total percentage exposure, increased exposure to infrastructure and manufacturing and distributors and converters customers, and drove more in-house iron ore sales, which reduced the percentage of sales to steel producers.
Approximately 45% of our flat-rolled steel shipments are sold under fixed base price contracts. These contracts are typically one year in duration and expire at various times throughout the year. Some of these contracts have a surcharge mechanism that passes through certain changes in input costs. A certain portion of our flat-rolled steel shipments are sold based on the spot market at prevailing market prices or under contracts that involve variable pricing that is tied to an independently published steel index.
We sell our steel products principally to customers in North America. For the vast majority of international sales, we are not the importer of record and do not bear the responsibility for paying any applicable tariffs.
Automotive Market
We specialize in manufacturing difficult-to-produce, high-quality steel products, combined with demanding delivery performance, customer technical support and collaborative relationships, to develop breakthrough steel solutions that help our customers meet their product requirements. In addition, many of our competitors do not have the capability to supply the full portfolio of products that we make for our automotive customers, such as steel for exposed automotive applications, the most sophisticated grades of AHSS and value-added stainless steel products. The exacting requirements for servicing the automotive market generally allows for higher selling prices for products sold to that market than for the commodity types of carbon and stainless steels sold to other markets.
The largest end user for our steel products is the automotive industry in North America, which makes light vehicle production a key driver of demand. During 2021, North American light vehicle production was 13 million units, the same as the prior year. Production each of the past two years was down 3 million units compared to the prior ten-year average primarily due to the global semiconductor shortage, as well as other material shortages and supply chain disruptions resulting from the COVID-19 pandemic. This has caused several outages amongst light vehicle manufacturers despite strong consumer demand. In light of these production outages, we have been able to redirect certain volumes originally intended for this end market to the spot market, where demand has been strong and pricing has reached all-time highs.
Furthermore, during 2021, consumer demand for sport utility vehicles, trucks and crossovers continued to increase while demand for smaller sedans and compact cars declined. We benefit from intentionally targeting larger vehicle platforms to take advantage of consumer preferences, and we have focused on and have been successful in getting sourced on numerous sport utility vehicle, truck, crossover and larger vehicle platforms. As a result, a significant portion of the carbon automotive steel that we sell is used to produce these popular larger vehicles. In addition to benefiting from our exposure to consumers’ strong demand for larger vehicles, these vehicles also typically contain a higher volume of steel than smaller sedans and compact cars, providing us the opportunity to sell a greater proportion of our steel products to our automotive customers.
Automotive manufacturers are under pressure to achieve heightened federally mandated CAFE standards. The CAFE standards generally require automobile manufacturers to meet an average fuel economy goal across the fleet of vehicles they produce with certain milestone dates. As a result, our automotive customers continue to explore various avenues for achieving the standards, including light weighting components and developing more fuel-efficient engines. Light weighting efforts include the use of alternatives to traditional carbon steels, such as AHSS and other materials. While this could reduce the aggregate volume of steel consumed by the automotive industry, we expect
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that demand will increase for current and next-generation AHSS and that our AHSS and other innovative steels will command higher margins. We are collaborating with our automotive customers and their suppliers to develop innovative solutions using our developments in light weighting, efficiency, and material strength and formability across our extensive product portfolio, in combination with our automotive stamping and tube-making capabilities. We are also working with our customers to develop steels with greater heat resistance for exhaust systems that support new, fuel-efficient engines that run at higher temperatures.
Automotive manufacturers have also been increasing their development of EVs and battery electric vehicles in order to meet the CAFE standards and growing customer adoption of EVs. Many motors used in EVs being sold in the U.S. today are imported from foreign suppliers, but more local sourcing and manufacturing of motors is expected to occur in the future. As the only North American producer of high-efficiency NOES, which is a critical component of EV motors, we are positioned to potentially benefit from the growth of EVs going forward. We believe our strong foundation in electrical steels and long-standing relationships with automotive manufacturers and their suppliers will provide us with an advantage in this market as it continues to grow and mature. Likewise, the growing customer adoption of EVs may also increase demand for improvements in the electric grid to support higher demand for more extensive battery charging, which our GOES could support.
The majority of our sales to the automotive market are under annual fixed price contracts. In 2022, our selling prices to this end market will be substantially higher as a result of favorable renewals. The improved prices in our fixed price contracts were driven by stronger market conditions and our unique product offering of automotive grade steel.
Infrastructure and Manufacturing Market
We sell a variety of our steel products, including plate, carbon, stainless, electrical, tinplate and rail, to the infrastructure and manufacturing market. This market includes sales to manufacturers of HVAC, appliances, power transmission and distribution transformers, storage tanks, ships and railcars, wind towers, machinery parts, heavy equipment, military armor, food preservation, and railway lines. Domestic construction activity and the replacement of aging infrastructure directly affects sales of steel to this market. Residential construction spending surged in 2021 due to overwhelming demand for new houses. Nonresidential construction spending was slightly down in 2021; however, the sector saw a surge in spending in the second half of the year and will likely continue into 2022 with the passing of the Infrastructure and Jobs Act of 2021. The Infrastructure and Jobs Act of 2021 will likely also increase demand for steel products related to renewable energy, as well as the modernization of the U.S. electrical grid. Our plate products can be used in windmills, which we estimate contain 130 metric tons of steel per megawatt of electrical generating capacity. Additionally, we estimate solar panels consume 40 metric tons of steel per megawatt of electrical generating capacity. We also expect to see an increase in charging stations for EVs which we will benefit from as we are the sole producer of electrical steel in the U.S.
Sales to this end market are made under a combination of annual fixed price contracts and index-linked pricing arrangements. Our selling prices under our annual fixed price contracts will be substantially higher in 2022 as a result of favorable renewals.
Distributors and Converters Market
Virtually all of the grades of steel we produce are sold to the steel distributors and converters market. This market generally represents downstream steel service centers, which source various types of steel from us and fabricate it according to their customers' needs. Our steel is typically sold to this market on a spot basis or under short-term contracts linked to steel pricing indices. Demand and pricing for this market can be highly dependent on a variety of factors outside our control, including global and domestic commodity steel production capacity, the relative health of countries’ economies and whether they are consuming or exporting excess steel production, the provisions of international trade agreements and fluctuations in international currencies and, therefore, are subject to market changes in steel prices.
The price for domestic HRC, the most significant index in driving our revenues and profitability of our Steelmaking segment, averaged $1,573 per net ton for 2021, a record year that was also 174% higher than 2020. The record prices for steel products in 2021 was a result of both supply and demand factors, each driven by a rapid recovery since the onset of the COVID-19 pandemic in 2020.
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Steel Producers Market
The steel producers market represents third-party sales to other steel producers, including those who operate blast furnaces and EAFs. It includes sales of raw materials and semi-finished and finished goods, including iron ore pellets, coal, coke, HBI, scrap and steel products.
The largest component of sales to this market during the year ended December 31, 2021 was third-party slab sales, which are primarily made under a long-term supply agreement that was initiated in connection with the closing of the AM USA Transaction.
Following the 2020 Acquisitions, production from our iron ore mines is predominantly consumed by our steelmaking operations. On a full-year basis, we would expect between 22 million and 24 million long tons of our iron ore pellets to be consumed by our steelmaking operations. During 2021, 2020 and 2019, we sold 4 million, 12 million and 19 million long tons of iron ore product, respectively, to third parties from our share of production from our iron ore mines. The merchant portion of our iron ore pellet production is sold pursuant to long-term supply agreements and through spot contracts.
We also entered into the scrap business with the FPT Acquisition in 2021. FPT is one of the largest processors of prime scrap in the country, representing approximately 15% of the entire U.S. merchant market. We believe this acquisition is a complementary addition to our footprint as prime scrap demand is expected to grow as new flat-rolled EAF capacity is set to come online over the next five years, and the worldwide focus on decarbonization continues. We expect to be able to leverage our long-standing flat-rolled automotive and other customer relationships into recycling partnerships to further grow our prime scrap presence.
The price of busheling scrap, a necessary input for flat-rolled steel production in EAFs in the U.S., averaged $602 per long ton during 2021, a 97% increase from the prior year. We expect the price of busheling scrap to remain elevated throughout 2022 due to decreasing prime scrap generation from original equipment manufacturers and the growth of EAF capacity in the U.S., along with a push for expanded scrap use globally. The expected rising price of busheling scrap was a key strategic rationale for the FPT Acquisition.
Applied Technology, Research and Development
We have an extensive history of being an innovator dating back more than a century. From upstream research and development, to downstream applications, we have dedicated technical and engineering resources that begin with improving customers' production and manufacturing performance to applications for their end product use.
We have a world-class research and development team expanding our capabilities to bring new steel products to the marketplace. Rapidly evolving and highly competitive markets for our steel products require our customers to seek new, comprehensive steel solutions, and we believe we are well positioned to deliver the most robust solutions through our broad portfolio of offerings. Collaboration across our research groups and operations generates innovative and comprehensive solutions for our customers, which we believe enhances our competitive advantage.
Our ongoing efforts to enhance technical collaboration at our state-of-the-art Research and Innovation Center in Middletown, Ohio, have increased the introduction of new steel solutions to the marketplace. Creating innovative products and breakthrough solutions is a strategic priority, as we believe differentiation through producing higher value steels to meet challenging requirements enables us to maintain and enhance our margins. We conduct a broad range of research and development activities aimed at improving existing products and processes and developing new ones. Our innovation of steel has produced a highly diversified steel product portfolio. As part of our underlying strategy to focus on higher-value materials and minimize exposure to commodity products, we have invested in research and innovation totaling $17 million and $15 million in 2021 and 2020, respectively.
We have also been a leader in iron ore mining and processing technology through the application of new technology to the centuries-old business of mineral extraction. We have also been a pioneer in iron ore pelletizing with over 60 years of experience. We are able to produce customized, environmentally-friendly pellets to meet blast furnace specifications and produce standard, fluxed and DR-grade pellets.
HBI
We are a pioneer in the development of emerging reduction technologies, a leader in the extraction of value from challenging resources and a front-runner in the implementation of safe and sustainable technology. We are also devoted to promoting environmental sustainability, evidenced with the development of our direct reduction plant in Toledo, Ohio. Construction of our Toledo direct reduction plant was completed in the fourth quarter of 2020, and the
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plant reached full run-rate nameplate annual capacity of 1.9 million metric tons of HBI per year in 2021. From this modern plant, we produce a high-quality, low-cost and low-carbon intensive HBI product that can be used throughout our footprint. We intend to use more HBI in our melting process to stretch our production of liquid pig iron from traditional inputs. The use of higher amounts of HBI in our blast furnaces ultimately stretches liquid steel output, which reduces coke needs and lowers carbon intensity.
Carbon Steel
We focus much of our research and innovation efforts on carbon steel applications for automotive manufacturers and their suppliers. We are particularly focused on AHSS for the automotive market, and we produce virtually every AHSS grade currently used by our customers. Our AHSS grades, such as Dual Phase 590, 780, 980 and 1180, have been adopted by our customers for both stamped and roll-formed parts, and our TRIP and NEXMET® products have demonstrated enhanced strength, formability and opportunities for automotive light weighting in cold-stamped applications. We are also pursuing application of NEXMET 490EX in surface-critical, exposed auto body panels as an alternative to aluminum.
Third Generation Advanced High-Strength Steel
Our third generation NEXMET AHSS products enable our customers to achieve significant light weighting in the unexposed structural components of their vehicles. NEXMET 1200, for example, offers superior formability similar to conventional Dual Phase 600 steel, but at twice the strength level. We have expanded the application of the NEXMET technology to our tubular products and stamped components businesses. These AHSS products allow automotive engineers to design lightweight parts that meet rigorous service and safety requirements. The NEXMET family of steels helps our customers achieve vehicle weight savings for ambitious fuel efficiency standards while avoiding significant capital costs required to re-design production facilities to use alternative materials.
Both galvanized and cold-rolled NEXMET AHSS are progressing through product qualification with several original equipment manufacturer customers. A number of stamping and component assembly trials have been completed successfully, with more planned and underway. Because the timing of automotive design and production cycles spans several years, widespread automotive customer adoption of revolutionary new material such as NEXMET AHSS may also extend over several years. We expect that other automotive vehicle platforms will incorporate NEXMET AHSS in their designs and that NEXMET AHSS will become a strong differentiator for us going forward.
Downstream Steel Applications
Our portfolio of steel solutions includes the operations of Tooling and Stamping, which provides advanced-engineered solutions, tool design and build, hot and cold-stamped components and complex assemblies for the automotive market. In addition to Tooling and Stamping, our downstream operations include Tubular Components, which manufactures advanced tubular products for automotive and other applications using carbon and stainless steels. We believe that collaboration among our steelmaking operations and our downstream businesses can accelerate the adoption of our innovative steel products by automotive manufacturers and their first tier suppliers.
Our research and technical experts have undertaken numerous collaborative projects that are generating robust solutions for our customers. Our expertise in tool design and stamping capabilities has allowed us to create prototype components using our innovative new sheet materials and present customers with new potential steel solutions. This approach has and, we expect, will continue to demonstrate to customers that they can significantly light weight automotive parts on an accelerated timeline and in a cost-effective manner by using our highly formable grades of AHSS in place of traditional material types.
In addition, our collaborative projects are enhancing our collective knowledge and experience in the stamping of new, advanced grades of steel, advanced engineered solutions, and tool design and build. For example, our Tooling and Stamping segment specializes in hot-stamping PHS for automotive applications. Our experience as a leader in PHS and expertise in hot-stamping has enabled us to have greater insight into these high-growth areas and has accelerated product development and customer adoption of these automotive light weighting solutions. Likewise, collaboration with the Tubular segment strategically advances our mission to innovate in AHSS for the automotive industry, as we have been at the forefront of producing tubular products from PHS and third-generation AHSS. We believe the combination of our stamping and advanced die-making capabilities, leading tube making capabilities and breakthrough material introductions will enhance our ability to deliver innovative, steel solutions to our customers.
We have recently been awarded contracts with several customers to supply complex assemblies and stamped automotive parts. In winning these contracts, we have been able to leverage our hot-stamping tooling
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leadership, in addition to our innovative hot-stamping process, to capture new strategic opportunities and demonstrate that we are one of the few businesses in North America that has the technical capabilities to produce a major complex assembly and stamping work of this nature.
Competition
Our Steelmaking segment principally competes with domestic and foreign producers of flat-rolled carbon, plate, tinplate, stainless, rail and electrical steel, carbon and stainless tubular products, aluminum, carbon fiber, concrete and other materials that may be used as a substitute for flat-rolled steels in manufactured products. Our Tooling and Stamping and Tubular Components businesses both compete against other niche companies in highly fragmented markets.
Price, quality, on-time delivery, customer service and product innovation are the primary competitive factors in the steel industry and vary in importance according to the product category and customer requirements. Steel producers that sell to the automotive market face competition from aluminum manufacturers (and, to a lesser extent, other materials) as automotive manufacturers attempt to develop vehicles that will enable them to satisfy more stringent, government-imposed fuel efficiency standards. To address automotive manufacturers’ light weighting needs that the aluminum industry is targeting, we and others in the steel industry have developed AHSS grades that we believe provide weight savings similar to aluminum, while being stronger, less costly, easier to repair, more sustainable and more environmentally friendly. Aluminum penetration has been primarily limited to specific automotive applications, such as outer panels and closures, rather than entire body designs. In addition, our automotive customers who continue to use steel, as opposed to aluminum and other alternative materials, are able to avoid the significant capital expenditures required to re-tool their manufacturing processes to accommodate the use of non-steel materials.
Mini-mills (producers using EAFs) comprise about 70% of steel production and 42% of flat-rolled steel production in the U.S. Their primary raw material is scrap metal, which has unpredictable and often volatile pricing. Due to the announced flat-rolled mini-mill capacity additions in the U.S. and increasing focus on industry decarbonization, we expect the price of scrap to remain elevated over historical averages, providing our integrated footprint a competitive advantage. Mini-mills also generally offer a narrower range of products than integrated steel mills, but the increasing use of pig iron and direct reduced iron have enabled them to modestly expand their product capabilities in recent years. However, we believe mini-mills often do not have the equipment capabilities to produce the product range that integrated facilities offer, nor do we believe they possess our depth of customer service, technical support, and research and innovation.
Domestic steel producers, including us, face significant competition from foreign producers. For many reasons, these foreign producers often are able to sell products in the U.S. at prices substantially lower than domestic producers. Depending on the country of origin, these reasons may include government subsidies; lower labor, raw material, energy and regulatory costs; less stringent environmental regulations; less stringent safety requirements; the maintenance of artificially low exchange rates against the U.S. dollar; and preferential trade practices in their home countries. In 2021, finished steel imports increased 48% compared to the prior year, as a result of a larger disparity between foreign and domestic prices, but still remain below levels seen between 2013 and 2018. We believe this is at least partially attributable to the implementation of certain trade restrictions on imported steel over the past five years, including both targeted trade cases and the more broad Section 232 tariffs. Modifications to these trade restrictions by government authorities could directly or indirectly impact import levels in the future. Import levels are also affected to varying degrees by the relative level of steel production in China and other countries, the strength of demand for steel outside the U.S., and the relative strength or weakness of the U.S. dollar against various foreign currencies. Imports of finished steel into the U.S. accounted for approximately 22% of domestic steel market consumption in 2021.
We continue to provide significant pension and healthcare benefits to a greater number of our retirees compared to certain other domestic and foreign steel producers that do not provide such benefits to any or most of their retirees, which increases our overall cost of production relative to certain other steelmakers. However, we have taken a number of actions to reduce pension and healthcare benefits costs, including negotiating progressive labor agreements that have significantly reduced total employment costs at our union-represented facilities, transferring all responsibility for healthcare benefits for various groups of retirees to VEBAs, offering voluntary lump-sum settlements to pension plan participants, lowering retiree benefit costs for salaried employees, and transferring pension obligations to highly rated insurance companies. These actions have not only reduced some of the risks associated with our pension funding obligations, but more importantly have reduced our risk exposure to performance of the financial markets, which are a principal driver of pension funding requirements. We continue to actively seek opportunities to reduce pension and healthcare benefits costs.
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Environmental Matters
Our operations are subject to various laws and regulations governing the protection of the environment. We monitor these laws and regulations, which change over time, to assess whether the changes affect our operations. We conduct our operations in a manner that is protective of public health and the environment.
Environmental matters and their management continue to be an important focus at each of our operations. From 2017 to 2021, we invested approximately $1 billion into our Toledo direct reduction plant, which provides a low carbon intensity raw material to our steelmaking operations. The HBI produced from the plant requires less energy to produce compared to traditional feedstock and can be used in blast furnaces to reduce emissions by improving energy efficiency and reducing the amount of coke required for steel production.
In the construction and operation of our facilities, substantial costs have been and will continue to be incurred to comply with regulatory requirements and avoid undue effect on the environment. In 2021, 2020, and 2019, our capital expenditures relating to environmental matters totaled $62 million, $34 million and $9 million, respectively. Our current estimate for capital expenditures for environmental improvements in 2022 is approximately $120 million for various water treatment, air quality, dust control, tailings management and other miscellaneous environmental projects. Additionally, we expect capital expenditures for environmental improvements for each of 2023 and 2024 to be generally in line with 2022's estimated spending.
Regulatory Developments
Various governmental bodies continually promulgate new or amended laws and regulations that affect us, our customers, and our suppliers in many areas, including air and water discharges, waste management and disposal, the classification of materials and products and other environmental, health, and safety matters. Although we believe that our environmental policies and practices are sound and do not expect that the application of any current laws, regulations or permits would reasonably be expected to result in a material adverse effect on our business or financial condition, we cannot predict the collective potential adverse impact of the expanding body of laws and regulations. Moreover, because all domestic steel, scrap and mining producers operate under the same federal environmental regulations, we do not believe that we are more disadvantaged than our domestic competitors by our need to comply with these regulations. Some foreign competitors may benefit from less stringent environmental requirements in the countries where they produce, resulting in lower compliance costs for them and providing those foreign competitors with a cost advantage on their products.
Specifically, there are several notable proposed or potential rulemakings or activities that could have a material adverse impact on our facilities in the future depending on their ultimate outcome: climate change and GHG regulation; selenium discharge regulation; Minnesota's sulfate wild rice water quality standard; Minnesota's mercury TMDL and mercury reduction rules; and the regulation of discharges to groundwater.
Climate Change and GHG Regulation
With the complexities and uncertainties associated with the U.S. and global navigation of the climate change issue as a whole, one of our potentially significant risks for the future is mandatory carbon pricing obligations, whether it be in the form of additional costs for emission allowances or restriction of production, as examples. Policymakers are in the design process of carbon regulation at the state, regional, national and international levels. The current regulatory variety of carbon compliance schemes presents a challenge for multi-facility entities to identify their near-term risks. Amplifying the uncertainty, the dynamic forward outlook for carbon pricing obligations presents a challenge to large industrial companies to assess the long-term net impacts of carbon compliance costs on their operations. Our exposure on this issue includes both the direct and indirect financial risks associated with the regulation of GHG emissions, as well as potential physical risks associated with climate change adaptation. We are continuing to review the physical risks related to climate change. As an energy-intensive business, we have a broad range of GHG emissions sources, such as iron ore furnaces and kilns, diesel mining equipment and integrated steelmaking facilities, among others. As such, among our most significant regulatory risks are: (1) the costs associated with on-site emissions levels (direct impacts); and (2) indirect costs passed through to us from power and fuel suppliers (indirect impacts).
Internationally, mechanisms to reduce emissions are being implemented in various countries, with differing designs and stringency, according to resources, economic structure and politics. The Paris Agreement to reduce global GHG emissions and limit global temperature increases to 2 degrees Celsius compared to pre-industrial temperatures became effective in November 2016 with 196 signatory countries. The U.S. became a signatory to the Paris Agreement with a pledge to reduce its GHG emissions by 26% to 28% from 2005 levels by 2025. The U.S. withdrew from the treaty in November 2020 and then subsequently rejoined the Paris Agreement in February 2021.
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Continued attention to issues concerning climate change, the role of human activity in it and potential mitigation through regulation may have a material impact on our customer base, operations and financial results in the future.
In the U.S., future federal and/or state carbon regulation potentially presents a significantly greater impact to our operations. To date, the U.S. Congress has not legislated carbon constraints. In the absence of comprehensive federal carbon legislation, numerous state, regional and federal regulatory initiatives are under development or are becoming effective, thereby creating a disjointed approach to GHG emissions control and potential carbon pricing impacts. We intend to remain active in the discussions related to legislative and regulatory changes at the federal and state levels.
Due to the potential variety of federal, state or regional carbon restriction schemes, our business and customer base could suffer negative financial impacts over time as a result of increased energy, environmental and other costs to comply with the limitations that would be imposed on GHG emissions. We believe our exposure can be reduced substantially by numerous factors, including currently contemplated regulatory flexibility mechanisms, such as allowance allocations, fixed process emissions exemptions, offsets and international provisions; emissions reduction opportunities, including energy efficiency, biofuels and fuel flexibility; and business opportunities associated with pursuing combined heat and power partnerships and new products, including DR-grade pellets, HBI, fluxed pellets and other efficiency-improving technologies.
Selenium Discharge Regulation
In Michigan, the Empire and Tilden mines have implemented compliance plans to manage selenium according to applicable permit conditions. A water treatment system for both facilities is anticipated sometime before 2028. As of December 31, 2021, included within our Empire asset retirement obligation is a discounted liability of approximately $100 million, which includes the estimated costs associated with the construction of Empire's portion of the required infrastructure and expected future operating costs of the treatment facilities. Additionally, included within our Tilden future capital plan is approximately $20 million for the construction of Tilden's portion of the required infrastructure. We are continuing to assess and develop cost effective and sustainable selenium treatment technologies.
In July 2016, the EPA published new selenium fish tissue limits and lower lentic and lotic water column concentration criteria, which may someday increase the cost for treatment should EGLE adopt these new standards in lieu of the existing limits required by the Great Lakes Water Quality Initiative. Accordingly, we cannot reasonably estimate the timing or long-term impact of these water quality criteria on our business.
Minnesota’s Sulfate Wild Rice Water Quality Standard
The Minnesota Governor established a Wild Rice Task Force by Executive Order in May 2018 that provided recommendations on wild rice restoration and regulation. The existing sulfate water quality standard for lakes and streams that contain wild rice has not been applied to any of our discharge permits or enforced historically by Minnesota. Further, the standard may be unenforceable because of legislation that prohibits the MPCA from enforcing it until the obsolete standard is updated based on modern science.
Minnesota submitted a list of impaired water revisions to the EPA in 2020. In 2021, the EPA disapproved of Minnesota’s draft impaired waters list and subsequently announced its proposed list of wild rice water bodies that were impaired due to sulfate under the Clean Water Act’s Section 303(d) process, which resulted in the addition of 32 waters in November 2021. At this time, it is unknown how the MPCA intends to implement requirements to address sulfate impaired waters.
For these reasons, the impact of potential obligations to address sulfate concentrations in certain water discharges from our Minnesota iron ore mining and pelletizing operations is not estimable at this time, but it could have a material adverse impact if we are required to significantly reduce sulfate in certain discharges.
Minnesota's Mercury TMDL and Mercury Reduction Rules
In September 2014, Minnesota promulgated the Mercury Air Emissions Reporting and Reduction Rules, mandating mercury air emissions reporting and reductions from certain sources, including taconite facilities. The rules apply to all of our Minnesota iron ore mining and pelletizing operations and required submittal of a Mercury Reduction Plan to the MPCA in 2018 with plan implementation requirements becoming effective on January 1, 2025. In the Mercury Reduction Plan, facilities evaluated if available control technologies can technically achieve a 72% mercury reduction rate. If available control technologies cannot technically achieve a 72% mercury reduction rate, the facilities must propose alternative mercury reduction measures. One of the main tenets agreed upon for evaluating potential
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mercury reduction technologies during TMDL implementation and 2014 rule development proceedings was that the selected technology must meet the following “Adaptive Management Criteria”: the technology must be technically feasible; must be economically feasible; must not impact pellet quality; and must not cause excessive corrosion in the indurating furnaces or air pollution control equipment.
The Mercury Reduction Plans for our Minnesota facilities were submitted to the MPCA in December 2018. In 2020, the MPCA requested additional information on certain plans, and we responded in a timely manner. There is currently no proven technology to cost effectively reduce mercury emissions from taconite furnaces to achieve the targeted 72% reduction rate, while satisfying all four Adaptive Management Criteria. The Mercury Reduction Plans that were submitted to the MPCA include documentation that describes the results of detailed engineering analysis and research testing on potential technologies to support this determination. The results of this analysis will continue to guide dialogue with the MPCA. Potential impacts to us are not estimable at this time because the revised Mercury Reduction Plans and additional technical information are currently being reviewed by the MPCA.
Regulation of Discharges to Groundwater
In general, states traditionally have regulated discharges of pollutants to groundwater through various programs such as wellhead protection programs and regulations related to remediation. In April 2020, the U.S. Supreme Court held in County of Maui v. Hawaiʻi Wildlife Fund that the EPA (and delegated states) have jurisdiction under the NPDES program if a point source discharges to groundwater and is the “functional equivalent” of a discharge to Waters of the United States. Until now, the NPDES program in the states we operate in has regulated only direct discharges to surface waters that constitute Waters of the United States from point sources. Although we do not anticipate that broadening EPA jurisdiction over groundwater discharges will materially adversely affect our operations, the impact to our operations is not reasonably estimable at this time.
Other Government Laws and Regulations
In addition to environmental laws and regulations, we are subject to various laws and regulations around the world. For example, changes in trade regulations, including tariffs or other import or export restrictions, could lead to lower or more volatile global steel prices, impacting our profitability. In addition, health and safety regulations, including laws or regulations promulgated in response to the ongoing COVID-19 pandemic, and OSHA and MSHA regulations, have necessitated, and may continue to necessitate, increased operating costs or capital investments to promote a safe working environment. We are also required to comply with complex foreign and U.S. laws and regulations, which may include the Foreign Corrupt Practices Act and other anti-bribery laws, the European Union’s General Data Protection Regulation and other U.S. and foreign privacy regulations, and transportation and logistics regulations. The laws and regulations noted above, as well as other applicable laws and regulations, or the manner in which they are interpreted or enforced, may require us to make material investments in the form of additional processes, training and capital, among other things. For a discussion of the risks associated with certain applicable laws and regulations, see Part I – Item 1A, Risk Factors.
Raw Materials and Energy
Our steelmaking operations require iron ore, HBI, coke, coal, ferrous and carbon and stainless scrap, chrome, nickel and zinc as primary raw materials. We also consume natural gas, electricity, industrial gases and diesel fuel at our operations. As a vertically integrated steel company, we are able to internally supply a majority of our raw materials needed for our steelmaking operations. We also attempt to reduce the risk of future supply shortages and price volatility in other ways. If multi-year contracts are available in the marketplace for those raw materials that we cannot supply internally, we may use these contracts to secure sufficient supply to satisfy our key raw material needs. When multi-year contracts are not available, or are not available on acceptable terms, we purchase the remainder of our raw materials needs under annual contracts or conduct spot purchases. We also regularly evaluate alternative sources and substitute materials. Additionally, we may hedge portions of our energy and raw materials purchases to reduce volatility and risk. We believe that we have secured, or will be able to secure, adequate supply to fulfill our raw materials and energy requirements for 2022.
The raw materials needed to produce a ton of steel will fluctuate based upon the specifications of the final steel products, the quality of raw materials and, to a lesser extent, differences among steel production equipment. For example, generally, in our integrated steelmaking facilities, we consume approximately 1.4 net tons of coal to produce one net ton of coke. The process to produce one ton of raw steel generally requires approximately 1.4 net tons of iron ore pellets, 0.4 net tons of coke and 0.3 net tons of steel scrap. At normal operating levels, we also consume approximately 6 MMBtu’s of natural gas per net ton of raw steel produced. Additionally, on average, our EAFs require 1.1 net tons of ferrous or stainless scrap to produce one net ton of high quality steel. We consume approximately 420 kilowatt-hours of electricity per net ton of steel produced. While these estimated consumption amounts are presented
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to give a general sense of raw material and energy consumption used in our steel production, substantial variations may occur.
Our investment into HBI production provides us access, when needed, to clean iron units in order to make advanced steel and stainless products. This access to our own production provides us flexibility and allows us to avoid the risks and carbon footprints of imported iron substitutes. Iron substitutes imported into the U.S. are traditionally sourced from regions of the world that have historically experienced greater political turmoil and have lower pollution standards than the U.S. Our investment demonstrates our raw material and company strategy in responsibly managing the risks of pricing, availability and overall carbon footprint of our critical inputs.
Our acquisition of FPT provides us sourcing and processing capabilities for both prime and obsolete scrap. This access is critical as prime scrap demand is expected to grow as new flat-rolled EAF capacity is set to come online over the next five years. The FPT Acquisition included 22 facilities that are primarily located in the Midwest near our steel facilities. We plan to pair the operational footprint of FPT with our long-standing flat-rolled automotive and other customer relationships to develop recycling partnerships that will further grow our prime scrap presence. Additionally, the FPT Acquisition furthers our commitment to being an environmentally-friendly, low-carbon intensity steelmaker with a cleaner materials mix as we are able to better optimize productivity at our existing EAFs and BOFs. Our investment in FPT further demonstrates our commitment to a vertically integrated business model.
Iron Ore
We own or co-own five active iron ore mines in Minnesota and Michigan. Based on our ownership in these mines, our share of annual rated iron ore production capacity is approximately 28 million long tons, which supplies all of the iron ore needed for our steelmaking operations. Refer to Part I - Item 2. Properties for additional information.
Coke and Coal
We own five cokemaking facilities, including two coke batteries located within our steelmaking facilities, one of which is temporarily idled. These facilities currently provide over half of the coke requirements for our steelmaking operations and have an annual rated capacity of 3.9 million net tons. Additionally, we have coke supply agreements with suppliers that provide our remaining requirements. Our purchases of coke are made under annual or multi-year agreements with periodic price adjustments. We typically purchase most of our metallurgical coal under annual fixed-price agreements. We have annual rated metallurgical coal production capacity of 2.3 million net tons from our Princeton mine, which supplies a portion of our metallurgical coal needs. We believe there are adequate external supplies of coke and coal available at competitive market prices to meet our needs. Refer to Part I - Item 2. Properties for additional information.
Steel Scrap and Other Materials
Following the FPT Acquisition, the majority of our scrap requirements are generated or processed from internal sources, including scrap generated at our steel production facilities. We believe that supplies of additional steel scrap, chrome, nickel and zinc adequate to meet the needs of our steelmaking operations are readily available from outside sources at competitive market prices.
Energy
We consume a large amount of natural gas, electricity, industrial gases and diesel fuel, which are significant costs to our operations. The majority of our energy requirements are purchased from outside sources. Access to long-term, low-cost sources of energy in various forms is critically important to our operations.
Natural gas is procured for our operations utilizing a combination of long-term, annual, quarterly, monthly and spot contracts from various suppliers at market-based pricing. We believe access to low-cost and reliable sources of natural gas is available to meet our operations’ requirements.
We purchase electricity for all of our operations in either regulated or deregulated markets. Due to the distinct nature of these markets, we procure electricity through either long-term or annual contracts. Some of our operations also use self-generated coke oven gas and/or blast furnace gas to produce electricity, which is an environmentally-friendly practice that also reduces our need to purchase electricity from external sources. We also closely monitor developments at the state and federal levels that could impact electricity availability or cost and incorporate such changes into our electricity supply strategy in order to maintain reliable, low-cost supply. We are currently evaluating the use of renewable energy to complement our existing supply. We believe there is an adequate supply of competitively priced electricity to fulfill our requirements.
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We purchase industrial gases under long-term contracts with various suppliers. We believe we have access to adequate supplies of industrial gases to meet our needs.
We predominantly purchase diesel fuel for our mining operations under long-term contracts with various suppliers. We believe we have access to adequate supplies of diesel fuel to meet our needs.
Human Capital
Cliffs has a long, proven history of attracting and retaining exceptional talent. We believe our employee-centric management philosophy is the key to our success. Even though many other employers are facing unprecedented labor shortages, we continued to grow during 2021.
As of December 31, 2021, we employed approximately 26,000 people. Approximately 25,500 were employed in the U.S. Approximately 24,000 employees were employed at production facilities, with the balance employed in corporate support roles. The vast majority of our approximately 21,000 hourly employees were subject to collective bargaining agreements (approximately 18,500) with various labor unions.
Labor Relations
Our labor relations philosophy is a cornerstone of our talent strategy. At Cliffs, we know that maintaining strong, positive relationships with labor unions is key to our long-term growth. We recognize and respect the right of our employees to freely associate and collectively bargain, and we do not engage in harassment, intimidation or retaliation for their efforts to bargain collectively.
More than three-quarters of Cliffs’ workforce are represented by three prominent unions—USW, UAW and IAM. The hardworking men and women of Cliffs are the lifeblood of our Company. Our employees operate and maintain our facilities and are, ultimately, responsible for safely delivering a quality product to our customers. Therefore, we engage with our unions as business partners, and together, we have achieved a number of successes that benefit our business and our people alike.
In 2021, labor contracts for workers represented at our Rockport, Dearborn, Mansfield and Monessen facilities were successfully ratified. We are proud to report we did not experience any strikes or lockouts last year. We expect to continue productive dialogue with our labor partners into 2022 as a number of other site agreements reach expiration and will be renegotiated. This positive partnership with our unions helps us remain competitive for talent and protects our customers and their supply chains from disruptions due to labor disagreements.
Talent Retention
We believe that our future success largely depends upon our continued ability to attract and retain a highly skilled workforce. We provide our employees with competitive salaries, incentive-based bonus programs that provide above-market compensation opportunities when our Company performs well, development programs that enable continued learning and growth, and a robust benefit package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off. In addition to these programs, we have used targeted, equity-based grants with vesting conditions to facilitate retention of key personnel. These tools have enabled us to increase the retention of key personnel, including our corporate and site leadership teams and critical technical talent.
Robust Employee Benefits Programs
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that provide protection and security so they can have peace of mind concerning events that may require time away from work or that impact their financial well-being; that support their physical and mental health by providing tools and resources to help them improve or maintain their health and encourage engagement in healthy behaviors; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.
Diversity, Equity & Inclusion
We continue to foster a culture of diversity, equity and inclusion at Cliffs. Through our OneCliffs Way of Doing Business (our Code of Business Conduct and Ethics), we outline our Core Values, which include Trust, Respect and Open Communication. To us, this means encouraging and accepting different views, and supporting and advancing gender and racial diversity. Further, our OneCliffs Way of Doing Business provides that we will not make employment-related decisions nor will we discriminate based on race, color, national origin, gender, age, religion, mental or
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physical disability, veteran status, sexual orientation or any other characteristic protected by applicable law. We strive to make Cliffs a safe place to work for all. Harassment and/or intimidation are not tolerated anywhere in our Company, and we hope our people make a career at Cliffs doing meaningful and challenging work.
COVID-19
In response to the COVID-19 pandemic, we implemented significant changes in our operations and workplaces in the best interest of our employees, as well as the communities in which we operate, which exceeded government regulations. This includes having all employees who could perform their work remotely work from home when necessary, while implementing numerous safety measures for employees continuing critical on-site work at our operations.
Additionally, in an effort to best protect our workforce and the Company, we launched a vaccine incentive program in July 2021 that was developed in partnership with our labor unions. Throughout the 45 days the program was in place, the vaccination rate more than doubled and we achieved a vaccination rate of over 75% throughout our workforce. The initiative resulted in a payout of $45 million in total cash incentive to our vaccinated workforce. The successful vaccination program allowed us to operate efficiently and safely throughout the remainder of 2021 and into 2022.
Safety
Safe production is our primary core value as we continue toward achieving a zero injury culture at our facilities. We constantly monitor our safety performance and make continuous improvements to affect change. Best practices and incident learnings are shared globally to ensure each facility can administer the most effective policies and procedures for enhanced workplace safety. Progress toward achieving our objectives is accomplished through a focus on proactive sustainable safety initiatives, and results are measured against established industry and Company benchmarks, including our Company-wide Total Reportable Incident Rate. During 2021, our Total Reportable Incident Rate (including contractors) was 1.37 per 200,000 hours worked.
Refer to Exhibit 95 Mine Safety Disclosures (filed herewith) for mine safety information required in accordance with Section 1503(a) of the Dodd-Frank Act.
Available Information
Our headquarters are located at 200 Public Square, Suite 3300, Cleveland, Ohio 44114-2315, and our telephone number is (216) 694-5700. We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC.
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s home page at www.sec.gov .
We use our website, www.clevelandcliffs.com , as a channel for routine distribution of important information, including news releases, investor presentations and financial information. We also make available, free of charge on our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. In addition, our website allows investors and other interested persons to sign up to receive automatic email alerts when we post news releases and financial information on our website.
We also make available, free of charge, the charters of the Audit Committee, Strategy and Sustainability Committee, Governance and Nominating Committee, and Compensation and Organization Committee, as well as the Corporate Governance Guidelines, and the Code of Business Conduct and Ethics adopted by our Board of Directors. These documents are available through our investor relations page on our website at www.clevelandcliffs.com . The SEC filings are available by selecting “Investors” and then “SEC Filings,” and corporate governance materials are available by selecting "Investors" and then “Governance” for the Board Committee Charters, the Corporate Governance Guidelines, and the Code of Business Conduct and Ethics.
References to our website or the SEC’s website do not constitute incorporation by reference of the information contained on such websites, and such information is not part of this Annual Report on Form 10-K.
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Copies of the above-referenced information are also available, free of charge, by calling (216) 694-5700 or upon written request to:
Cleveland-Cliffs Inc.
Investor Relations
200 Public Square, Suite 3300
Cleveland, OH 44114-2315
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Following are the names, ages and positions of the executive officers of the Company as of February 11, 2022. Unless otherwise noted, all positions indicated are or were held with Cleveland-Cliffs Inc.
Name Age Position(s) Held
Lourenco Goncalves 64 Chairman, President and Chief Executive Officer (August 2014 – present); and Chairman, President and Chief Executive Officer of Metals USA Holdings Corp., an American manufacturer and processor of steel and other metals (May 2006 – April 2013).
Clifford Smith 62 Executive Vice President & President, Cleveland-Cliffs Steel (September 2021 – present); Executive Vice President, Chief Operating Officer (January 2019 – September 2021); and Executive Vice President, Business Development (April 2015 – January 2019).
Keith Koci 57 Executive Vice President & President, Cleveland-Cliffs Services (September 2021 – present); Executive Vice President, Chief Financial Officer (February 2019 – September 2021); and Senior Vice President and Chief Financial Officer, Metals USA Holdings Corp. (2013 – February 2019).
Celso Goncalves 34 Executive Vice President, Chief Financial Officer (September 2021 – present); Senior Vice President, Finance & Treasurer (March 2020 – September 2021); Vice President, Treasurer (January 2018 – March 2020); and Assistant Treasurer (September 2016 – January 2018).
Terry Fedor 57 Executive Vice President, Operations, East (September 2021 – present); Executive Vice President, Chief Operating Officer, Steel Mills (March 2020 – September 2021); Executive Vice President, Operations (February 2019 – March 2020); and Executive Vice President, U.S. Iron Ore (January 2014 – February 2019).
Traci Forrester 50 Executive Vice President, Environmental & Sustainability (May 2021 – present); Executive Vice President, Business Development (May 2019 – May 2021); Vice President, Deputy General Counsel & Assistant Secretary (January 2018 – May 2019); and Deputy General Counsel & Assistant Secretary (January 2017 – May 2019).
James Graham 56 Executive Vice President, Chief Legal Officer & Secretary (November 2014 – present).
Maurice Harapiak 60 Executive Vice President, Human Resources & Chief Administration Officer (January 2018 – present); and Executive Vice President, Human Resources (March 2014 – January 2018).
Kimberly Floriani 39 Senior Vice President, Controller & Chief Accounting Officer (August 2021 – present); Vice President, Corporate Controller & Chief Accounting Officer (April 2020 – August 2021); and Director, Accounting & Reporting (August 2015 – April 2020).
All executive officers serve at the pleasure of the Board. There are no arrangements or understandings between any executive officer and any other person pursuant to which an executive officer was selected to be an officer of the Company. Celso Goncalves, our Executive Vice President, Chief Financial Officer, is the son of Lourenco Goncalves, our Chairman, President and Chief Executive Officer. There is no other family relationship between any of our executive officers, or between any of our executive officers and any of our directors.
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