Cliffs is ready to drive the automotive inventory comeback

By Jerry Burnes/Iron Range Today

Cleveland-Cliffs has set its sights on the auto industry as one of the company’s keys for 2023. 

The steelmaker announced Tuesday that it secured fixed price contracts with automakers, a move that could put Cliffs in the driver’s seat when automakers begin to rebuild their inventory in a post-pandemic era when supply chain issues have started to resolve.

Lourenco Goncalves, chairman, president and CEO of Cliffs, said during the company’s year-end earnings calls that he’s expecting a larger sales volume to the auto industry in 2023 compared to 2022, with what he described as a “significant but modest” price increase in line with inflation. 

“Automotive is the most exciting steel consuming sector in 2023,” he added. “The age of cars on the road, consumer backlog, low unemployment rate and inventory levels continue to point to growth in automotive sales and production over the coming years. Particularly now, when they have finally improved their supply chains.”

The focus on the auto industry means Cliffs plans to double down on its blast furnace operations, bucking the industry trend that is moving toward electric arc furnaces (EAFs). Automakers require highly-specified steel for their products that EAFs can’t produce.

Along with the materials, Goncalves cited other countries also relying on blast furnaces for the industry and the U.S. importing iron ore and sinter feed to make the necessary, and specific, steel products. 

“That’s why Cleveland-Cliffs does not need to, and does not plan to invest in new EAFs beyond the five EAFs we already operate,” he said, later noting the company is able to use hot-briquetted iron (HBI) in its blast furnaces.

Car prices have risen about 30% in the last few years, largely due to the Covid-19 pandemic that created high demand and low supply. While the supply chain issues have started to resolve, automakers have yet to ramp up production of new vehicles. 

Cliffs is making a bet that car companies will look to increase their inventory in the coming years, which would be a boon for steelmakers supplying the sector. Goncalves is also predicting that the newly-formed fixed costs, combined with the company’s ability to deliver specific steel products on time, will put Cliffs in a good position to feed the industry’s output.

“Clients had to worry about a lot of things, but there was no steel disruption from Cleveland-Cliffs,” Goncalves said.” The steel was always there. Automatic. We are good at that.”

No update on Northshore, HibTac

Goncalves didn’t provide an update on the idled Northshore operation in Babbitt and Silver Bay, but the company’s IRS filing reported that it “will restart no earlier than the second quarter of 2023.”

The second quarter begins in April, which matches the latest timeline the company provided for its restart after idling it in early 2022. 

Cliffs also didn’t provide updates on state mineral leases at the former Butler Taconite site in Nashwauk, which the company wants to gain access to in order to expand the lifespan of Hibbing Taconite. 

Cliffs was expected to express formal interest in the leases with the state Department of Natural Resources, and U.S. Steel, the minority owner of HibTac, was expected to be interested. It is unknown how many companies have formally applied for the leases with the DNR.

“We plan to discuss the developments around the Nashwauk site with our stakeholders, including the governmental agencies involved,” a U.S. Steel spokesperson told Iron Range Today. “We consistently seek out opportunities that will support our business, and the Iron Range is fundamental to our strategy.” 

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