Cleveland-Cliffs is bullish automotive business is rebounding: 'In the United States, automotive steel means Cliffs'

Since hoovering up steel mills in Northwest Indiana and across the nation, Cleveland-Cliffs’ strategy has been to focus on the U.S. automotive sector.

The steelmaker’s automotive business has been picking up for the last two quarters after a steep downturn during the semiconductor shortage. The third quarter was its strongest yet for automotive, and Cleveland-Cliffs is bullish that automotive demand will continue to recover.

Cleveland-Cliffs Executive Vice President and Chief Financial Officer Celso Goncalves said in a conference call with investors that volumes should increase in the fourth quarter as a result of greater automotive, service center and slab demand. Higher volumes are expected to drive down Cleveland-Cliffs’ costs.

“Very importantly, our automotive shipment levels in the third quarter have indicated the largest end market has been countercyclical due to the massive backlog from lower production over the past two years,” he said. “The strength of our automotive franchise with our unique product offering and ability to lock in fixed price contracts will reduce volatility, especially now that our major maintenance, repair and capital expenditures are behind us and costs begin to trend meaningfully lower.”

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Longtime mining company Cleveland-Cliffs acquired AK Steel and ArcelorMittal USA, two of its biggest customers, in 2020 with an eye toward becoming the supplier of choice to automakers in the United States.

During the pandemic, the automotive industry was hobbled by the shortage of chips used in today’s high-tech vehicles, such as for lane assist, rear view cameras, Bluetooth connections and other features that have become increasingly standard in new models.

But the supply chain knots have been getting untangled and inventory is bouncing back.

“As for demand, we were encouraged by the 100,000 tons volume improvement from our automotive customers from the second quarter to the third quarter,” Chairman, President and CEO Lourenco Goncalves said. “And while they’re still not back to normalized levels, the worst impact of the chip shortage seems to be behind us.”

Cleveland-Cliffs has been positioning itself to serve as the leading supplier of steel to the U.S. automotive industry, Goncalves said.

“We manage our production schedules based on the auto OEMs’ needs. We have to reserve our available capacity to align with their production forecast, and we hold their inventory if they have production issues which, by the way, happens a lot,” he said. “We have a fully dedicated customer service group that manages this complicated just-in-time inventory system to the point that our customers don’t even have to think about steel. It’s there when they need, automatic.”

The company’s reliability should be a draw after all the supply chain issues bedeviled the industry in recent years, resulting in plant idlings, half-empty new car lots and lower sales volumes, he said.

“Now that they have microchips, we want each one of our automotive clients to be successful in 2023. They have a unique opportunity in 2023 as automotive may be the only sector with pent-up demand to take care of.”

Automakers don’t want any more disruptions, Goncalves said.

“The last thing they need now is not having access to all the specs of steel they need to produce cars,” he said. “That can be a lot more devastating than not having microchips.”

Despite current headwinds, business is picking up, Goncalves said.

“We have an infrastructure bill that should finally start to drive steel demand in the next year,” he said. “We expect automotive taking up more steel share and we have manufacturing being reassured. When this thing turns around, it will turn around sharply. With an ongoing war, multi-decade highs in inflation, rapidly rising interest rates and our focus on mitigating climate change, we are living in a difficult time in a world in transition.”

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