Cliffs expects automotive steel demand rebound by year-end: CEO

Cleveland-Cliffs anticipates steel demand from the automotive industry to improve by the end of the year, rebounding from floundering steel consumption in the industry since 2020 due to lower vehicle production, CEO Lourenco Goncalves said July 22.

"Starting in the second half of 2022, we expect to get more automotive volume, and with more volume and baseload for our mills, our costs should naturally improve," Goncalves said during the steelmaker's second-quarter earnings call.

Cliffs is the largest supplier of steel to the automotive sector, which in turn represents the company's largest market. The ongoing global semiconductor shortage and other logistical issues have hampered vehicle production since 2020 and caused softer demand for steel among automakers.

"In the six years leading up to 2020, North American light vehicle production averaged more than 17 million units per year," Goncalves said. "Comparably, in the past two years, the industry has only produced 13 million units per year, a 24% decline at a time when consumer's demand for cars was growing."

Goncalves said the unprecedented downturn in the automotive industry during the initial onset of the coronavirus pandemic in 2020 coincided with Cliffs' entry into the automotive steel market upon completing its acquisitions of AK Steel and most of ArcelorMittal's US assets.

"Within a week of the completion of our AK Steel acquisition in March of 2020, the entire automotive production ecosystem shut down for the first time ever in its century-plus long history," he added. "While the automotive sector was slowly coming back to life, we acquired ArcelorMittal USA... next, another wave of supply chain issues began to hit the sector with widespread shortage of microchips being the most visible problem."

Steel demand in construction has subsequently outpaced demand from automotive since 2020, but that trend should soon change, Goncalves said. The expectation for stronger automotive activity is supported by low unemployment rates, pent-up automotive demand from consumers and vehicle transaction prices, he added.

"Over the past two years, we at Cleveland-Cliffs have made the investments necessary to meet this coming onslaught of demand, and we are ready with the most advanced technical capabilities the industry can offer," he said, referring to the company's numerous blast furnace upgrades and other investments.

Cliffs' steel shipments in the second quarter dipped 13% year over year to 3.6 million.

The Cleveland-based steelmaker reported an income of $601 million on total revenue of $6.34 billion in Q2, compared with income of $795 million on sales of $5.05 billion in Q2 2021.

Ohio electrical steel investment

Goncalves said Cliffs is investing $30 million at its Zanesville, Ohio, mill to add 70,000 st/year of non-oriented electrical steel (NOES) production by 2023 in response to automaker customer demand, thereby doubling the company's current capacity for the steel product.

NOES is a critical material for the manufacture of engines in electric vehicles.

"We are not only the largest supplier of steel to the automotive sector, but we're also the largest supplier of each one of the individual car manufacturers currently transitioning from internal combustion engine vehicles to EVs," Goncalves said. "We are the only domestic producer of non-oriented electric steel in the United States, where roughly 150 lb are required per vehicle for use in the motor."