Strong US auto demand backs steel price increases: Cliffs

Cleveland-Cliffs CEO Lourenco Goncalves said Feb. 14 his company is seeing strong order activity from its automotive clients in 2023 following the successful renegotiation of fixed price contracts at the end of last year, and this momentum in the US market has underpinned the steelmaker's recent price increases and bullish shipment outlook.

"In our view of the current economic landscape, automotive is the most exciting steel consuming sector for 2023," Goncalves said during Cliffs' fourth-quarter earnings call with industry analysts. "Our January auto steel shipment rate was its best in nearly a year, and we expect this momentum to continue throughout 2023."

Cliffs expects to ship 16 million st in 2023, up from 14.8 million st in 2022. With bullish demand tailwinds, Goncalves said the full-year shipment target was achievable as the company has now completed most major equipment maintenance and is already on pace to meet its Q1 shipment target.

For 2023, Goncalves said about 5 million st will be supplied directly to steel customers and about 2 million st of additional automotive steel will be shipped to service centers and other processors.

Goncalves said robust demand from automotive customers has subsequently tightened Cliffs' supply availability for nonautomotive customers, thus justifying the company's five announced price increases to its steel sheet products since November.

"Back in November, we started to note an inflection in both service center buying behavior and the scrap market, which finally began to point in a positive direction," he said. "We capitalized on this and announced our first of what is now five price increases, all of which have taken hold and moved pricing higher."

In November, Cliffs announced a $50/st price increase to its sheet products as domestic steel prices were descending to a year-to-date low, with the Platts TSI US hot-rolled coil index ex-works Indiana falling to $620/st from $1,500/st earlier in the year, according to data from S&P Global Commodity Insights.

The Cleveland-based steelmaker has since announced four subsequent price increases and is now setting a minimum base price for HRC at $900/st. The Platts HRC index was assessed at $820/st Feb. 13.

Auto contracts seen as 'game changer'

In a separate earnings statement, Cliffs highlighted its renewed fixed-price contracts with automakers, noting that the average prices agreed upon in those contracts rose despite the decline of domestic steel prices in the second half of 2022.

Goncalves said Cliffs' success with the contracts signals a turning point for the US steel industry, which historically has had to cut prices to compete for automotive supply contracts with domestic peers and imports.

"You go back to this value destruction that the automotive industry promoted between steel companies, and as of 2022 and 2023, we're still facing that," he said, adding that negotiations with automakers still presented challenges.

Goncalves said, however, that Cliffs has increasingly been able to negotiate from a position of strength as it is one of only a handful of blast furnace steelmakers remaining in North America capable of producing proper grades of automotive steel.

"Now a supplier of automotive not begging for orders and offering lower prices to get it, it's another big game changer," he added.

Cliffs' 2022 revenue reached nearly $23 billion from $20.44 billion in 2021. However, its income fell to $1.38 billion from $3.03 billion in 2021.