Cliffs Looks to Boost Shipments After Major Maintenance Repairs

Cliffs’ Q3 earnings took a hit as “abnormally elevated costs incurred in Q2 flowed over into Q3,” Cliffs’ Chairman, President, and CEO Lourenco Goncalves said on the call.

When Cliffs purchased ArcelorMittal USA in late 2020, it knew by the “low” purchase price that the company’s assets hadn’t seen adequate investment, so repair and maintenance costs were implied. As the Cleveland-based steelmaker began to invest in the aged assets, “in many cases, we found more work to do than we had anticipated,” Goncalves said. For example, a planned blast furnace reline at the company’s Cleveland Works this year also resulted in a rebuild of the wastewater treatment plant and offsite power house. The reline was completed in August and the furnace and operations were brought back online.

The company expects capital expenditures to decline in the current quarter and into next year, with $700–800 million of planned capex for 2023.

“We are now at a point where the major maintenance cycle has been concluded. Our equipment is in great shape. We’re primed to meet the unique needs of our customers, particularly in automotive,” Goncalves said.

The automotive industry is “now in a position to carry the market” because the worst of the semiconductor chip shortage that has plagued the industry about two years is behind us, Goncalves said. The company is encouraged by its 100,000-ton Q3 volume improvement to auto customers over the prior quarter.

Cliffs is further encouraged by pent-up demand for vehicles due to an aging fleet, low dealer inventories, and low unemployment signaling consumers’ need for transportation to get to work and their ability to afford higher-priced vehicles.

Cliffs’ sales to external customers reached 3.635 million tons in Q3. And with the automotive sector on its way back, Goncalves is confident the company can get back to its more usual quarterly shipments of 4 million tons and is pushing for at least 3.8 million tons for Q4.

Goncalves said not to count on Cliffs to take down equipment and curb production to implement discipline in the market “if others are completely undisciplined.” Having invested so heavily in maintenance and repairs, and having the ability to produce exposed automotive grades that other mills can’t, “We run our assets,” he said. “Don’t count on me to take my capacity out to make the life of others better.”

This month, Cliffs completed the annual fixed-contract renewals with some of its auto customers, achieving what Goncalves said were the second-best weighted-average prices for the company, behind only last year. Another renewal cycle will begin in January for other customers, and he is reminding them that Cliffs can offer more than they can get on the spot market. With a complicated just-in-time inventory system and the ability to hold inventory for customers when they need it, “Our customers don’t even need to think about steel: It’s there when needed, automatic,” he stated.

By Laura Miller, Laura@SteelMarketUpdate.com