Cleveland-Cliffs (CLF) Q3 2025: Automotive Steel Mix Jumps to 30%, Powering Margin Rebound

October 20, 2025 | By EarningsIQ Research

Automotive steel demand surged at Cleveland-Cliffs this quarter, with the company locking in multi-year contracts that are set to reshape its revenue mix and margin structure well into 2027. Cost discipline and operational optimization delivered meaningful savings, while asset sales and strategic partnerships are set to further strengthen the balance sheet. With policy tailwinds and end-market restocking emerging, Cliffs’ positioning in domestic steel appears increasingly durable as the auto sector reindustrializes in the US.

Summary

• Automotive Steel Share Rises: Mix shift toward auto-grade steel is driving higher realized pricing and margin expansion.
• Cost Structure Reset: Operational footprint optimization and SG&A cuts are on track for $300 million in annual savings.
• Multi-Year Demand Visibility: New long-term contracts with major automakers and a strategic MOU with a global steelmaker anchor future volume and pricing.

Performance Analysis

Cleveland-Cliffs’ third quarter saw a decisive shift in end-market demand, with automotive steel shipments leading the way and marking the best quarter since Q1 2024 for this segment. Automotive shipments rose from 26% to 30% of volume, directly lifting the average selling price (ASP) to $1,032 per net ton, a sequential improvement driven entirely by this richer mix. Coded volumes, meaning galvanized and coated steel for exposed automotive parts, also increased their share, further boosting pricing power.

Operationally, the company’s cost structure benefited from the full implementation of its footprint optimization program, which is delivering on the promised $300 million in annual savings. Unit costs, adjusted for the higher-value mix, are now expected to finish the year $50 per ton lower than 2024, extending a multi-year trend of cost reduction. SG&A and capital expenditure (CapEx) budgets have been aggressively trimmed, with CapEx guidance for 2025 now at $525 million, down from $700 million, and SG&A expected at $550 million, reduced from $625 million. These cuts reflect both overhead discipline and lower spend at underperforming Stelco, the Canadian subsidiary.

• Automotive Mix Expansion: Share of shipments to automotive rose to 30%, up from 26%, driving ASP gains.
• Cost Optimization Impact: $300 million in annualized savings on track, with lower CapEx and SG&A run rates supporting margin resilience.
• Asset Monetization: Non-core property sales totaling $425 million are under contract, with proceeds earmarked for debt reduction.

While overall shipment volumes were seasonally lower at 4 million tons, the quality of the mix and improved pricing more than offset volume softness. The expiration of a legacy slab contract in December will further enhance internal utilization, allowing Cliffs to reclaim production and capture additional margin from growing auto demand.

Executive Commentary

Strategic Positioning

1. Automotive Steel Dominance

Cliffs has entrenched itself as the primary supplier of automotive-grade steel in North America, with nine plants (including five for exposed parts) already running and ready to scale further as OEMs onshore production. Multi-year contracts with all major automakers—including Ford, GM, Stellantis, Hyundai, Honda, and Toyota—lock in both volume and pricing, providing visibility and stability through at least 2027. Management highlighted that Cliffs’ capacity far exceeds that of any competitor, reinforcing its market leadership as OEMs shift away from aluminum due to recent supply chain disruptions.

2. Policy Tailwinds and Tariff Resilience

Section 232 tariffs and the US trade agenda have become structural, not cyclical, supports for domestic steelmakers. Cliffs’ leadership emphasized that the only way for OEMs to avoid tariffs is to manufacture in the US, cementing the company’s strategic position as the domestic supplier of choice. The company’s partnership with the US government extends beyond commercial contracts, as evidenced by the $400 million, five-year contract to supply grain-oriented electrical steel for national security stockpiles.

3. Asset Optimization and Balance Sheet Flexibility

Cliffs is actively monetizing non-core assets, with $425 million in property sales under contract and further asset sales (such as the Florida FPT site) in process. Proceeds are earmarked for debt reduction, and the company has already refinanced all 2027 maturities, pushing its next bond maturity out to 2029. The deprioritization of a broader asset sale process reflects the strategic importance of a new memorandum of understanding (MOU) with a global steelmaker, which could unlock additional value and partnerships as foreign OEMs move production to the US.

4. Canadian Weakness and Rare Earth Initiative

Stelco, the Canadian subsidiary, remains a drag due to rampant steel dumping and lack of Canadian government action, with imports accounting for 65% of the market. Cliffs is lobbying for Canadian policy reform, but remains focused on US growth. Separately, the company is advancing exploration of rare earth minerals at sites in Michigan and Minnesota, aiming to support US critical material self-sufficiency and potentially open a new revenue vertical.

Key Considerations

The quarter marks a strategic inflection point for Cliffs, as management leverages strong auto sector tailwinds, policy support, and internal optimization to position for sustained growth and margin improvement. However, execution on new contracts, asset monetization, and rare earth development will be key to realizing the full potential of these shifts.

Key Considerations:

• Auto Contract Ramp: Multi-year automotive contracts begin ramping in Q4 and into 2026, with volume and pricing upside embedded.
• Cost Savings Durability: Annualized $300 million in cost savings is on track, but sustaining reductions as volumes recover will require continued discipline.
• Stelco Drag: Canadian operations remain under pressure from steel dumping, with limited near-term relief absent government intervention.
• Rare Earth Potential: Early-stage exploration could unlock a strategic new business, but commercial viability and timelines remain uncertain.
• Balance Sheet Trajectory: Asset sales and cash flow are set to support debt reduction, but gross debt remains elevated for now.

Risks

Key risks include persistent weakness in construction and general manufacturing end markets, ongoing policy uncertainty in Canada, and execution risk around new auto contracts and rare earth initiatives. The company’s high debt load, while manageable in the near term, could become a constraint if macro conditions worsen or if asset sales are delayed. Management’s bullish stance on US trade policy and demand recovery could be challenged by political or economic shifts.

Forward Outlook

For Q4 2025, Cleveland-Cliffs guided to:

• Steel shipment volumes similar to Q3, at approximately 4 million tons, reflecting seasonality and holiday shutdowns in automotive.
• Unit costs to remain consistent with Q3 levels, with no change to the full-year guidance of $50 per ton reduction year over year (adjusted for mix).

For full-year 2025, management maintained guidance:

• CapEx of $525 million and SG&A of $550 million, both below initial expectations.

Management highlighted several factors that will shape results:

• Ramp of new automotive contracts and continued mix improvement.
• Completion of asset sales and proceeds deployment toward debt paydown.

Takeaways

Cliffs’ Q3 results mark a turning point in its end-market mix and cost structure, with automotive now the clear growth engine. Policy tailwinds and operational discipline are translating into higher margins and improved visibility, though Canadian operations and high leverage remain watchpoints.

• Automotive Steel Upswing: The mix shift to automotive and coated products is driving sustainable pricing and margin gains, with multi-year contracts anchoring future growth.
• Cost and Asset Discipline: Execution on footprint optimization and asset monetization is strengthening the balance sheet and freeing up capacity for higher-value production.
• Strategic Flexibility Ahead: Investors should watch for updates on the global steelmaker MOU, rare earth development, and further policy shifts as Cliffs positions for a new cycle of domestic manufacturing growth.

Conclusion

Cleveland-Cliffs is emerging from a challenging cycle with a reset cost base, clearer demand visibility, and a fortified strategic position in automotive steel. Sustained execution on new contracts, further asset sales, and policy support will be critical to unlocking the next leg of value creation.

Industry Read-Through

Cliffs’ results and commentary signal a pivotal shift in North American steel demand, with automotive onshoring and trade policy creating durable tailwinds for domestic producers. The decline in aluminum’s share of automotive and the renewed focus on supply chain resilience may drive similar repositioning across metals and manufacturing industries. Asset optimization and cost discipline are likely to become industry norms as companies adapt to a structurally changed demand environment. Investors should monitor the pace of OEM re-shoring, the durability of tariff regimes, and the emergence of new verticals such as rare earths for broader sector implications.

CLF Materials Steel Automotive Tariffs Rare earths Asset sales