Steel Giant Cleveland Cliffs Will Enter the Scrap Business. The Stock Rises Sharply.
North America’s largest steel producer, Cleveland-Cliffs , announced Monday it was acquiring Ferrous Processing and Trading Co., a metal recycler, in a deal with an enterprise value of $775 million.
Shares of Cleveland-Cliffs (ticker: CLF) were rising more than 6% to $21.88 on Monday.
The deal marks Cleveland-Cliffs entry into the scrap metal business.
Detroit-based Ferrous Processing buys scrap metal from industrial metal processors, stamping plants, scrap dealers, brokers and individuals and recycles them before selling, according to the company’s website. It produces about 3 million tons of scrap per year.
It’s among the largest processors and distributors of prime ferrous scrap in the nation, making up about 15% of the domestic merchant prime scrap market, according to a press release from Cleveland-Cliffs about the acquisition.
Cleveland-Cliffs CEO Lourenco Goncalves said that prime scrap was set to become even more scarce as new flat-rolled electric arc furnace capacity comes online in the market over the next four years.
The transaction, set to close in the fourth quarter, will expand Cleveland-Cliffs’ existing portfolio of iron ore pellets and direct-reduced iron to include prime scrap.
“The acquisition of FPT will enhance our ability to buy back prime scrap directly from our clients, cutting the middlemen and improving the margin contribution from scrap for both Cleveland-Cliffs and for the manufacturing and service center clients that will be able to sell scrap directly back to us,” said Goncalves. Cleveland-Cliffs’ shares have risen 49.66% this year through Friday. The S&P 500 has gained 17.43% and the Dow Jones Industrial Average has advanced 14.09% over the same period.
Write to Karishma Vanjani at [email protected]
