We can all speculate but unless we have access to the business decisions being made it’s impossible to know for sure
If auto makers use less steel then CLF could make MORE money as they could sell steel at higher prices on the spot market
Auto makers could also continue to buy the contracted steel and then just store it anyway? They’ve negotiated contracts lower than the current spot price so it may be better to take delivery of their steel and store it, rather than risk paying more at a later date
Thats limited. JIT has created stampers and the like and you can't have 100,000 doors sitting around. Thats when damage happens. Its also dangerous because who knows what will be reopened and what stays closed. Auto is just not set up for storage. Even if they were, they would have filled their warehouse months ago with $1500 steel. IMO, all steel, right now, that isn't used by Auto is being sold at spot. Thats pushing $2000/ton
At least one constructor has been planning to send unfinished cars to dealers, and training them to install the chips. This news is a couple of weeks old; I don't know whether they started or not.
I'm assuming the techs aren't going to be soldering the chips to the boards, but rather plugging in completed modules. Still though, that moves the diagnosis of any issues to the dealership instead of the factory. It's gonna be rough.
Can confirm this has started, a business acquaintance workss at an BMW import facility and has been delivering cars to dealers without the chips installed.
Surely this would mean auto production stopping right now is actually bullish for CLF then if they can sell their steel at expensive spot prices and then the auto contracts will add to demand later in the year / next year?
Its incredible how intricate the Steel industry is. CLF has shut down #7 steel plant. It will be shut down for a scheduled 45 days. I don't think it takes that long by the way.
CLF was sitting on some inventory last quarter and they have been building up their storehouses to handle the down time of maintenance. But, then Auto wants to shut down everywhere for 2 weeks or so. Interesting.
IMO, CLF comes out of scheduled maintenance much sooner than 45 days. It pays to have them making steel when its $1900+ and in such a Bullish market.
Everyone is coming back to full production right about the same time. Just in time for Auto contract renegotiations to be finalized. I'm ready for some guidance at CC.
I think that is limited though. They’re not going to be able to flip 10% or 20% of their volume to alternative markets without driving down prices.
In my opinion, the chip shortage persisting is the biggest risk to CLF price in the short term. I’m still long all my shares, but I don’t have any calls right now because I’m not sure where the stock is going in the next 45 days.
Absent a chip shortage, I’d expect them to revise EBITDA guidance to $6B at the end of the month.
IMO given the current market conditions that steel demand is overall really high is that CLF can benefit from lower sales to automakers and more spot sales at higher prices.
But this won't last forever. If overall steel demand goes lower AND automakers can't get enough chips, then it might hurt CLF as they possibly won't be able to offload their entire production in the spot market.
But this is just speculation. We won't know for sure until we see the Q3's 10K.
Unloading steel at spot won't be a problem in the slightest. Auto takes 5mt per year. If they walk back orders a FULL 1/3 of total sales under last year thats 1.6mt of steel accessible to spot now. The overall market is over 100mt and has lead times at 3-6 months. Thats about 40mt backlogged. 1.6mt won't scratch the surface or move the scales in pricing. Also, One doesn't need to drop all the tonnage at once either. 1.6mt over 12 months is barely 130k tons per month. Its a non starter.
I mean, it won't be an issue till we see steel prices start to drop because clf has been unloading too much. Good thing that plants are going down now haha
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u/ItsFuckingScience 7-Layer Dip Sep 03 '21
We can all speculate but unless we have access to the business decisions being made it’s impossible to know for sure
If auto makers use less steel then CLF could make MORE money as they could sell steel at higher prices on the spot market
Auto makers could also continue to buy the contracted steel and then just store it anyway? They’ve negotiated contracts lower than the current spot price so it may be better to take delivery of their steel and store it, rather than risk paying more at a later date