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Updated: 03-Feb-25 11:31 ET
Cleveland-Cliffs ended a tough 2024 on a sour note, but steel producer expecting a rebound (CLF)
In the words of Cleveland Cliffs (CLF) CEO Lourenco Goncalves, 2024 was the worst year for domestic steel demand since 2010, not including the COVID-impacted year of 2020, which is reflected in both the company's financials and its stock price, which is down by about 53% on a yr/yr basis. Those struggles were on display again this morning when the company issued downside Q4 revenue guidance of $4.30 bln, equating to a yr/yr drop of nearly 16%, marking the tenth time out of the past eleven quarters that it has experienced a revenue decline.
A primary culprit has been a sluggish auto industry that's been hamstrung by persistently high interest rates and a cash-strapped consumer that's hesitant to add another bill to the monthly budget. Across the industry, eroding steel prices due to soft demand and elevated manufacturing inventories have pressured earnings, as illustrated by U.S. Steel's (X) slightly worse-than-expected Q4 loss of $(0.13) from last Thursday.
However, the tide may be about to turn for CLF and competitors such as U.S. Steel, Nucor (NUE), and Steel Dynamics (STLD). When STLD reported Q4 results on January 22, it stated that steel pricing is stabilizing, and that customer optimism is on the rise -- a sentiment that CLF echoed today. Specifically, Mr. Goncalves stated that CLF has already seen improvements this year in the automotive and non-automotive order book, and that he's confident that President Trump's agenda will have an outsized benefit on the company.
A primary culprit has been a sluggish auto industry that's been hamstrung by persistently high interest rates and a cash-strapped consumer that's hesitant to add another bill to the monthly budget. Across the industry, eroding steel prices due to soft demand and elevated manufacturing inventories have pressured earnings, as illustrated by U.S. Steel's (X) slightly worse-than-expected Q4 loss of $(0.13) from last Thursday.
However, the tide may be about to turn for CLF and competitors such as U.S. Steel, Nucor (NUE), and Steel Dynamics (STLD). When STLD reported Q4 results on January 22, it stated that steel pricing is stabilizing, and that customer optimism is on the rise -- a sentiment that CLF echoed today. Specifically, Mr. Goncalves stated that CLF has already seen improvements this year in the automotive and non-automotive order book, and that he's confident that President Trump's agenda will have an outsized benefit on the company.
- In particular, CLF and its competitors believe that the Trump administration's proposed tariffs on China, Mexico, and Canada will drive steel prices higher as steel imports into the U.S. fall. It's worth noting that during President Trump's first term, steel prices did initially rocket higher by about 100% to $1,000 per short ton in August 2018 but ultimately rolled over later that year and completed a roundtrip, ending 2019 back at $500 per ton. The main issue was that the high level of demand that was created initially due to manufacturers stockpiling steel to get ahead of price increases fizzled out and began to unwind.
- Looking beyond tariffs, CLF is also optimistic that its $2.5 bln acquisition of Stelco -- a Canadian producer of flat-rolled steel -- will pay meaningful dividends this year. The acquisition, which was completed this past November, expands CLF's presence in Canada and doubles its exposure to the flat-rolled spot market.
- On the topic of acquisitions, Reuters reported on January 14 that CLF is eyeing an acquisition of U.S. Steel after the Biden Administration blocked Nippon Steel's bid to purchase U.S. Steel for $55/share. This wouldn't be the first time that U.S. Steel has landed on CLF's radar. In August 2023, CLF attempted to acquire the company at $54/share, but that deal was scrapped over concerns that regulators would shut it down due to competitive concerns.
The main takeaway is that 2025 is shaping up to be a stronger year for CLF after enduring a rough stretch over the past few years, but uncertainties do remain. For instance, if end market demand doesn't significantly improve, due to high interest rates or other macro headwinds, then any potential benefit from tariffs could be erased.
