Cleveland-Cliffs' Latest Move in Vertical Integration: Scrap Metal

In its latest move to take a stake in each step of the steel life cycle, Cleveland-Cliffs, Inc., has entered the steel scrap business.

The vertically integrated steel firm announced October 11 it had come to an agreement to purchase Ferrous Processing and Trading Company, a prime ferrous scrap processor, for about $775 million in cash.

FPT runs 22 scrap processing factories, and like Cleveland-Cliffs, calls the Midwest home; its headquarters are in Detroit, Michigan, and roughly 90% of the company’s profits come from its facilities in Ohio and Michigan. Outside the Midwest, FPT has two locations in Florida, two in Tennessee, and one each in Mexico and Canada. According to Cleveland-Cliffs, FPT processes about 3 million tons of scrap metal per year, half of which is prime grade scrap, and sells 99% of it to North American clients.

The deal will be useful for Cleveland-Cliffs, according to its CEO, Lourenco Goncalves, in part because Cleveland-Cliffs already indirectly makes a lot of scrap:

“As the largest supplier of flat rolled steel in North America, Cleveland-Cliffs is the main source of the steel that generates prime scrap in manufacturing facilities,” Goncalves said in a statement. “Cleveland-Cliffs also consumes a very significant amount of scrap in our [electric arc furnaces] and [basic oxygen furnaces],” he added.

Cleveland-Cliff’s expanded scrap capacity will also allow it to leverage its flat-rolled steel client relationships, including those it has with automotive manufacturers, into recycling partnerships. On a company slideshow on the deal, Cleveland-Cliffs noted that demand for scrap is likely to increase due to efforts by manufacturers to cut carbon dioxide emissions.

Purchasing FPT, which represents about 15% of the domestic merchant prime scrap market, will let Cleveland-Cliffs “cut out the middlemen” and buy scrap back directly from their own clients, Goncalves said. In a slideshow published by Cleveland-Cliffs covering the FPT acquisition, the company predicted U.S. demand for prime scrap and metallics to grow by 9 million gross tons per year over the next four years and noted that the supply of prime scrap has been shrinking for 50 years running thanks to manufacturing offshoring and yield improvements.

In a statement, the steelmaker said it expects the market for prime scrap to “grow dramatically with limited to no growth in corresponding supply.”

The FPT acquisition is only the latest in Cleveland-Cliff’s quest to occupy every step of the steel supply chain from iron ore to shaped materials. Founded in 1847 as a mine operator, the company broke onto the steel scene proper in 2020 after acquiring AK Steel for $1.1 billion. Later that same year, Cleveland-Cliffs purchased ArcelorMittal USA’s U.S. operations for about $1.4 billion, a deal that catapulted it to become the largest flat-rolled steel producer on the continent.