Steel Mills

Cliffs Posts Record '21 Profit, Says Higher Contracts Mean Good Times in '22 Too

Written by Michael Cowden

Cleveland-Cliffs Inc. posted a near-record profit in the fourth quarter and predicted that the good times would continue to roll into 2022 thanks to fixed-price contracts resetting at higher numbers.

That prediction comes largely because automakers, which typically buy steel on contract terms, were forced to limit production in 2021 because of the global chip shortage, company executives said.

cliffs natural resourcesCar companies are expected to make up that lost production this year as chips become more readily available, Cliffs said.

The Cleveland-based steelmaker thinks that it should see an outsized benefit from that trend because it is the largest steel supplier to the North American automotive industry.

“With demand on the rebound, particularly in automotive, 2022 is set to be another phenomenal year for profitability at Cleveland-Cliffs,” company Chairman, President and CEO Lourenco Goncalves said in a statement released along with earnings data on Friday, Feb. 11.

As for 2021, Cliffs recorded net income of $893 in the fourth quarter, nearly 14 times more than the $64 million posted in the fourth quarter of 2020, on revenue that more than doubled year-over-year to $5.35 billion from $2.26 billion.

The company posted net income of $2.99 billion for the full year in 2021 after losing $122 million in 2020 on annual revenue that nearly quadrupled to $20.44 billion last year from $5.35 billion in 2020.

Why the bullishness on the company’s prospects for 2022 despite current plunging spot prices for hot-rolled coil?

“Based on our recently renewed contracts, we are now selling the vast majority of our fixed-price contractual volumes at substantially higher selling prices,” Goncalves said.

“Even at the steel futures curve as of today, we would expect to see higher average selling prices for our steel in 2022 than in 2021,” he said.

Cliffs said the current futures curves implies an average hot-rolled coil price of $925 per ton ($46.25 per hundredweight) for the balance of the year.

The company expects its average selling price – thanks to fixed-price contracts – to be higher than that: an average of $1,225 per ton.

That would mark an improvement from 2021, when spot HRC prices averaged $1,600 per ton but Cliff’s average selling prices was only $1,187 per ton because of lower-priced contracts.

Automotive contracts for one year are typically negotiated in the fall of the prior year. Contracts negotiated in 2020 were done so when the supply chain was still fearful of a potential Covid-related demand collapse and not anticipating the spike in demand that subsequently materialized amid limited supply.

In other words, mills negotiated 2021 contracts in late 2020 from a perceived position of weakness. Almost no one along the supply chain foresaw steel prices in 2021 rising to their highest point ever.

By Michael Cowden,

Michael Cowden

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