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November. 2022
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Cleveland-Cliffs Expects 2023 Capex Reduction

Steel producer Cleveland-Cliffs Incorporated (NYSE:CLF) (Cleveland, Ohio), the largest steel supplier for the U.S. automotive market, expects its capital expenditures to decline in the fourth quarter and into 2023. With major projects in the rearview mirror, it anticipates spending between $700 million and $800 million in 2023--down $100 million from its projected 2022 spend. Industrial Info is tracking more than $780 million worth of active projects by Cleveland-Cliffs that have a high or medium (70-99%) probability of moving forward as planned--none of these are grassroot projects.


"With our major repair and maintenance impacts behind us, no ongoing or planned new construction projects and improving automotive sector, and, most importantly, labor peace throughout our organization, we are ready to continue to execute..." Lourenco Goncalves, chief executive officer of Cleveland-Cliffs, said in a quarterly earnings-related conference call. "Now, that all major projects have been concluded and production levels are back to normal, we expect costs to decline meaningfully, into Q4 and further into 2023."

Regarding those costs, he noted: "Based on our inventory status and current outlook for inputs, we expect our reported unit cost in Q4 to fall at least $80 per ton compared to Q3, with further reductions into the first half of 2023."

Goncalves expects a resurgence in the automotive market to keep the company's steel production on an upward trend: "As for demand, we were encouraged by the 100,000 tons volume improvement from our automotive customers from Q2 to Q3. And while they're still not back to normalized levels, the worst impact of the chip shortage seems to be behind us."

According to the latest data tracked by the St. Louis Federal Reserve, citing U.S. Department of Commerce data, domestic auto production in August reached 164.7 million units--up from 150.1 million in July and 122 million in January. Meanwhile, total vehicle sales in September reached 13.9 million units--up from 13.6 million in August and 13 million in May.

Cleveland-Cliffs said it aims to increase production to between 3.9 million and 4 million short tons per quarter, up from the approximately 3.6 million short tons in the last three quarters.

To support that production increase, the company is upgrading its steel works plant in Burns Harbor, Indiana--which is expected to wrap up in June 2023. The $100 million project entails performing upgrades on the existing blast furnaces, walking beam furnace and the hearth mill, plus other improvements to boost operations at the 5 million-ton-per-year facility. Subscribers to Industrial Info's Global Market Intelligence (GMI) Metals & Minerals Project Database can click here for a detailed project report.

A $39 million plant expansion at its automotive metal stamping parts plant in Cleveland, Tennessee, is expected to kick off in August of next year. The 259,000-square-foot building expansion is part of a $114 million, 500,000-square-foot development at a 41-acre tract of land. Click here for the project report.

The company also is at work on a $100 million modernization of its Butler Steel Works in Pennsylvania, which involves adding new equipment and upgrading existing equipment to meet increasing demand for batteries needed to support the growing electric vehicle (EV) market. Subscribers can click here for the project report.

But it's maintenance activity that's at the forefront of Cleveland-Cliffs' high- or-medium-probability projects, and more than $114.5 million worth of maintenance projects are planned for 2023. These include annual $10 million programs at both its Weirton Steel Mill in West Virginia and Middletown Steel Works in Ohio, and a series of shutdowns at its East and West steel works in East Chicago, Indiana. Click here for a full list of project reports.

Meanwhile, Cleveland-Cliffs' push for decarbonization also is fueling its project activity. One way the steelmaker aims to reach net-zero steel production is by switching from traditional blast furnaces to electric arc furnaces (EAFs). In April, the company filed an air permit with the Ohio Environmental Protection Agency for an EAF melt shop addition at Middletown to produce steel slab; as of now, the project is expected to kick off in March 2024. Click here for the project report.

A recent report by consultant Wood Mackenzie (Edinburgh, U.K.) estimates decarbonizing the global iron ore and steel industry by 2050 will require $1.4 trillion in capital spending. For more information, see September 20, 2022, article - WoodMac: Iron Ore, Steel Decarbonization to Cost $1.4 Trillion.

Subscribers to Industrial Info's GMI project and plant databases can click here for a full list of detailed reports for projects mentioned in this article, and click here for a full list of related plant profiles.

Subscribers can click here for a full list of reports on active Cleveland-Cliffs projects that have a high or medium (70-99%) probability of moving forward as planned.

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