CLF's Auto Platform Efficiency Boosts Growth Amid Structural Shifts

Cleveland-Cliffs secured a major strategic inflection point in Q3 2025. The company locked in 30% of its quarterly revenue through multi-year OEM contracts featuring price escalation clauses extending through 2027-2028. These agreements provide price protection against raw material volatility, creating predictable cash flow as automotive production ramps up. The contracts represent a tangible shift toward higher-value, long-term relationships rather than spot-market sales.

The firm strengthened its global position through a Memorandum of Understanding (MoU) with a major international steel producer. This partnership leverages Cleveland-Cliffs' U.S. manufacturing footprint to capture trade policy-driven demand, particularly for domestic-content-focused projects. While details remain under negotiation, the MoU signals confidence in the company's ability to meet evolving supply chain requirements.

Automotive steel shipments, now 30% of total volume, became the primary engine of profitability. This shift generated a 52% sequential rise in adjusted EBITDA, reaching $143 million. Improved pricing from new contracts combined with $50/ton unit cost reductions year-over-year amplified margins. Operational efficiencies, including $300 million in annualized savings from footprint optimization, further bolstered results.

These structural changes create significant momentum, though two realities temper optimism. The company posted a $223 million adjusted net loss in Q3, reflecting high capital expenditure and commodity price volatility. Additionally, the $425 million asset sale target remains critical for debt reduction, with execution risk lingering if market conditions deteriorate. The automotive focus, while profitable now, could face headwinds if consumer demand softens or new trade agreements disrupt pricing dynamics.

Operational Discipline Converts Efficiency to Margins

Cleveland-Cliffs has turned operational restructuring into tangible cost advantages. The Toledo HBI plant integration slashed unit production costs by $50 per ton year-over-year, a key driver of the company's 52% sequential jump in adjusted EBITDA for Q3 2025. This efficiency gain stems from reduced coke usage and tighter process controls, which also improved flat-steel quality-a boost that now lets the firm command better pricing.

The company's footprint optimization delivered $300 million in annualized savings, achieved partly by terminating redundant slab contracts and internalizing production. Meanwhile, a $425 million asset sales program and a $400 million defense contract further eased debt pressure. Notably, these moves freed capital to scale electrical steel output for EV and utility applications, a segment with backlog visibility through 2027.

While growth opportunities abound, scaling capacity requires sustained investment. The firm's $300 million savings target assumes stable raw material prices and uninterrupted contract fulfillment-risks heightened by potential delays in IIJA/IRA infrastructure funding. Still, with premium-margin contracts renewed through 2027-2028, Cleveland-Cliffs aims to turn today's cost discipline into longer-term resilience against commodity cyclicality.

Growth Constraints & Key Risks

While Cleveland-Cliffs builds on strong momentum, several constraints and risks could temper near-term progress. The termination of a key slab import contract, which generated substantial annual savings running into hundreds of millions of dollars, creates integration risks as the agreement expires on December 9 without full execution. This could disrupt production flows and require rapid reorientation of sourcing, potentially affecting output consistency.

Meanwhile, the auto platform division faces execution uncertainty during the 2025-2027 automotive qualification cycles for third-generation advanced high-strength steel. These cycles are critical to securing premium margins amid rising EV demand, but delays or failures could hinder growth. Regulatory shifts in CO₂ pricing could also erode the margin upside from low-carbon ironmaking initiatives.

Despite these headwinds, the company's operational discipline provides some resilience. Its automotive steel constitutes 30% of total shipments, while $50/ton unit cost reductions year-over-year demonstrate cost management capabilities that could offset some risks.