Cleveland-Cliffs (CLF) Q2 2026 earnings review
EBITDA Triples on Pricing Power, But Bottom-Line Profit Remains Elusive
Cleveland-Cliffs delivered a massive sequential jump in Adjusted EBITDA, tripling from $95M in 26Q1 to $286M in 26Q2. The top-line story is strong: revenue reached $5.2B on the back of Average Selling Prices (ASP) surging to $1,124 per ton. Management is aggressively bullish, guiding for Q3 EBITDA to double again to ~$575M as scheduled outages conclude. However, the operational reality is more nuanced. Despite the pricing power and a return to positive free cash flow, steel shipment volumes actually fell 6% YoY, contradicting the narrative of booming demand. Furthermore, heavy depreciation and interest expenses kept the company in the red with a GAAP net loss of $134M.
🐂 Bull Case
Average Net Selling Price jumped $76 per ton sequentially to $1,124. This pricing strength, protected by strict Section 232 trade enforcement, is flowing directly into EBITDA margins.
Management expects Q3 Adjusted EBITDA to reach ~$575M—more than double Q2—as April/May maintenance outages end and mills run at higher, more efficient utilization rates.
🐻 Bear Case
Despite management touting strong automotive demand, Q2 steel shipment volumes declined to 4.02 million tons from 4.10 million in Q1 and 4.29 million a year ago. Growth is entirely price-driven.
Even with a $349M cash margin, heavy depreciation ($236M) and interest expenses ($156M) dragged the company to a $134M net loss. CLF needs massive scale to beat its fixed costs.
⚖️ Verdict: ⚪
Neutral. The sequential margin explosion and Q3 guidance are undeniably bullish. However, paying down debt from actual earnings is mathematically difficult when the company continues to post nine-figure GAAP net losses and volume is contracting.
Key Themes
Average Selling Price (ASP) Surging
Pricing power is accelerating. ASP rose to $1,124 per net ton, up significantly from $1,048 in 26Q1 and $1,015 a year ago. The lag effect from extended order books (1-2 months out) means the robust spot pricing environment is finally flowing through the P&L, overcoming earlier cost pressures.
Free Cash Flow Reverses to Positive
Cash generation is reversing its negative trend. After massive cash burns in late 2025 and early 2026, operating cash flow turned positive in Q2 at $230M. With CapEx relatively controlled at $157M, the company generated ~$73M in Free Cash Flow, allowing them to finally begin executing their core priority: debt reduction.
Trade Protections Forcing Market Share Shifts
The macroeconomic backdrop remains highly supportive due to strict Section 232 enforcement. With imports subdued, domestic customers are essentially forced to rely on CLF and its peers. Additionally, the company continues to tout the transition from aluminum back to steel in automotive manufacturing due to aluminum supply chain fragility.
Shipment Volumes Contradict 'Strong Demand' Claims
Management stated 'automotive volumes remained strong' and demand is 'improving.' However, actual Q2 external sales volumes were 4.025 million net tons—decelerating from 4.108 million in Q1 and down 6% from 4.290 million a year ago. If demand is so robust, shipments should be expanding, not shrinking.
Structural Fixed Cost Drag
Adjusted EBITDA looks great, but CLF remains structurally unprofitable on the bottom line. In Q2, the company recorded $236M in DD&A and $156M in net interest expense. This massive fixed cost burden ensures that until volumes dramatically increase or debt is heavily paid down, true shareholder net income will remain negative.
Stelco (Canada) Turnaround Timing
Management noted they are 'beginning to see meaningful improvement in the Canadian market, positioning Stelco to return to generating significant earnings.' In prior quarters, Stelco was explicitly cited as a drag due to cheap foreign imports. The market expects Stelco to become accretive in H2 26.
Other KPIs
Accelerating dramatically. Cash margin was just $136M in Q1 2026 and $138M a year ago. This 152% YoY improvement proves that price increases are handily outpacing the cash cost of goods sold, delivering pure operating leverage.
Stable. Gives CLF significant breathing room to navigate net losses while funding operational needs and managing its $7.7B long-term debt load. Debt to EBITDA target is < 2.5x by Q2 2027.
Guidance
Accelerating aggressively. This implies a 100% sequential jump from Q2's $286M. Management credits the end of April/May maintenance outages, combined with rising average selling prices flowing through from extended lead times.
Accelerating vs H1. With only 8.13 million tons shipped in H1, achieving the 16.75 million midpoint requires H2 shipments to average ~4.3 million tons per quarter. This demands a sharp reversal of the volume deceleration seen in Q2.
Stable. Maintained expectation. With $309M spent in H1, the H2 run rate will be nearly identical, supporting the narrative of returning to meaningful positive free cash flow.
Key Questions
Volume Contradiction
You noted that automotive volumes remained strong and demand continues to improve, yet total steel shipments fell 6% YoY in Q2. Which specific end-markets drove this volume decline, and why should we expect a reversal in H2 to meet your 16.5-17.0M ton full-year guidance?
Path to GAAP Profitability
Despite Q2 Adjusted EBITDA tripling sequentially to $286M, the company still posted a GAAP net loss of $134M due to high interest and DD&A. At what precise quarterly EBITDA level do you expect Cleveland-Cliffs to turn net income positive?
Stelco's Financial Impact
You mentioned 'meaningful improvement' in Canada positioning Stelco to return to earnings generation. Is Stelco expected to be EBITDA positive in Q3, and what was its exact financial drag on the overall Q2 results?