Cleveland-Cliffs Inc. (NYSE: CLF) saw its shares rally sharply on Thursday, climbing 17.1% to $11.07 in early trading on the New York Stock Exchange. The surge came after the steelmaker projected a robust third-quarter adjusted EBITDA of $575 million, representing a 101% increase from the second quarter's $286 million. The forecast underscores a significant improvement in unit economics, driven by rising steel prices rather than higher shipment volumes.
In the second quarter, steel shipments dipped 2.0% sequentially to 4.025 million tons from 4.108 million tons in the first quarter. However, average selling prices rose 7.3% to $1,124 per ton, up from $1,048 per ton in the prior quarter and $1,015 per ton in the same period last year. This price uplift translated into a sharp improvement in margins. The calculated steel cash margin per ton surged to $86.71, a 162% increase from $33.11 in the first quarter and well above the $32.17 recorded a year earlier. Total steel cash margin reached $349 million, compared with $136 million in Q1 and $138 million in Q2 2025.
Chairman and CEO Lourenco Goncalves highlighted the company's operational leverage, stating, 'Q3 adjusted EBITDA is expected to more than double Q2.' The improved profitability is driven by favorable unit economics as the company benefits from higher selling prices and cost control, even as overall shipment volumes remain constrained. For the full year, Cliffs maintained its shipment guidance of 16.5 million to 17.0 million tons and capital spending guidance of approximately $700 million.
Revenue for the second quarter rose 5.9% year-over-year to $5.226 billion. The net loss narrowed significantly to $134 million from $473 million in the same period last year. Operating cash flow totaled $230 million, and free cash flow—calculated as operating cash flow minus $157 million in property expenditures—came in at roughly $73 million. The company's balance sheet showed long-term debt of $7.70 billion as of June 30, while Thursday's market capitalization stood near $6.31 billion, reflecting the market's optimistic reassessment of Cliffs' earnings potential.
The rally in Cliffs shares outpaced gains among its peers. Nucor Corp. (NYSE: NUE) rose 2.6% to $242.11, and Steel Dynamics Inc. (NASDAQ: STLD) advanced 2.3% to $244.01. The divergence suggests that investors are specifically repricing Cliffs based on its operating leverage and profit prospects, rather than following a broader sector move. Automotive clients accounted for 29% of steelmaking revenue in the second quarter, and management anticipates higher automotive volumes in the third quarter, which could help spread fixed costs over a larger output base.
Despite the positive outlook, risks remain. Steel prices are volatile, import levels could shift, and demand from the automotive sector is subject to rapid changes. Additionally, Cliffs' long-term debt exceeds its current equity value, underscoring the importance of cash generation. Investors will be watching closely to see if the projected $575 million EBITDA translates into meaningful debt reduction in the coming quarters.
