Cliffs Sees Better Times in '23 After Posting Q4'22 Loss

Inflation is down, employment rates are at acceptable levels, and the Consumer Price Index is “not too crazy.”

“The doomsday scenario that some were anticipating is not really materializing. We are doing good. Our orderbook is showing (that),” Goncalves said during an earnings conference call with analysts on Tuesday, Feb. 14.

All told, the Cleveland-based steelmaker recorded a net loss of $204 million in the fourth quarter of 2022 compared to earnings of $899 million in the same quarter of 2021 on revenue that slipped 5.6% to $5.04 billion over the same comparison. For the full year, the company posted net income of $1.38 billion in 2022, down 54.5% from $3.03 billion in 2021 despite revenue increasing 12.5% to $22.99 billion.

Cliffs recorded external sales volumes of 3.84 million tons in the fourth quarter of 2022, up 13.6% from 3.38 million tons in fourth quarter of 2021. But volumes for the entire year were 14.75 million tons, down from 15.89 million tons for full-year 2021.

Goncalves was asked on the call whether the company had achieved the $850 per ton ($42.50 per cwt) minimum base price it set for hot-rolled coil earlier this month. He was also asked whether the $900-per-ton target price it announced on Monday for hot-rolled coil would stick.

“Is it sticking or not? We are at $850, and we believe $900 is achievable – that’s our take,” he said, noting that there had been no slowdown in bookings over the last 24 hours since the new, higher bases were announced.

Cliffs has announced five price hikes since late November, and the prior increases have also gained traction. Those higher prices impact not only the spot market but also customers on contracts that adjust up and down with spot prices, Cliffs CFO Celso Goncalves noted.

Adjustable contracts, typically linked to CRU prices, follow the spot market on a lag. That means company earnings before interest, taxes, depreciation and amortization (ebitda) will probably be higher in Q1 than in Q4, and higher in Q2 than in Q1, he said.

Also providing a lift are higher fixed-price contracts negotiated with automotive customers last year. Those higher prices are taking effect this year. The contract gains were initially forecast to be $100 per ton over 2022 levels, an estimate that has since been revised upward to $115 per ton, Lourenco Goncalves said.

As for lower volumes in 2022, they stemmed in large part from “catch-up” maintenance performed last year as well as the reline of a blast furnace. Sales volumes are expected to improve this year because those repairs are now complete.

Cliffs expects to ship approximately 16 million tons in 2023, or about 4 million tons per quarter. That might prove conservative if automotive demand continues to improve, Goncalves said.

“They absolutely built more cars in January than they did in each month of the previous quarter,” he said. “That’s a data point that we have. And we expect that … will continue at least at the exact same level that we saw in January, and maybe better.”

Goncalves stressed that the focus on maintenance, like higher automotive contract prices, was a stark change from prior ownership.

“We deliver automotive on time. We take care of our clients. We run our assets for maximal profitability. These are the guidelines. We don’t have to run 24/7 to mitigate costs and fight for the last ton – we have a different approach to business,” Goncalves said.

“That’s why we invest money into taking care of equipment instead of just running to exhaustion,” he added. “That’s what I saw when I acquired the assets two years ago, no more. The assets are in good shape.”

Cliffs acquired the former AK Steel and the former ArcelorMittal USA in 2020, which transformed it from being an iron ore miner to one of the largest steelmakers in the US.

By Michael Cowden, michael@steelmarketupdate.com