Cliffs CEO Says Flat-Rolled Spot Prices Will Rise

Cliffs CEO Says Flat-Rolled Spot Prices Have Not Peaked

With spot prices of US-made hot-rolled coil (HRC) and cold-rolled widely reported early this week above $1,280 per ton and $1,480/ton, respectively by market participants, Cleveland-Cliffs CEO Lourenco Goncalves said on a Q3 earnings conference call that there’s room to go higher. He also acknowledged a “new norm” in selling steel on a contract basis.

On Monday’s call with analysts, Goncalves opened his remarks by saying, “The most important and positive development for Cleveland-Cliffs since our last call has been the strength of our 2027 round of contract negotiations with our clients. The largest portion of our steel volume consists of tons sold to service centers and end users under annual fixed price or index-linked contracts.”

He explained that all these contracts reset on January 1 of next year, and nearly all of those customers want more steel under contract in 2027 than in 2026. “Suffice to say that we have been very successful in renewing these contracts.” Goncalves added: “In aggregate, the improvements should generate more than $1 billion of year-over-year EBITDA improvement before even contemplating changes of the underlying pricing index.” (See related Cliffs Q3 earnings story)

Responding to a question from KeyBanc analyst Samuel McKinney, Goncalves emphasized that he believes “steel prices are not at a peak.” The CEO also noted that “fixed prices are gone.” He also shed more light on the contract and spot markets after McKinney asked: “With 70%-plus of the mix on fixed or index-linked contracts, do you see that mix evolving into next year, where we hear from a lot of buyers about the mills attempting to reduce their contract exposure to take advantage of this rich spot market?”

Goncalves reiterated that Cliffs is “doing well with the (contract) renewals.” He added that the minimum tonnage contracted is a take-or-pay arrangement for Cleveland-Cliffs. “And … we are not, by any stretch, forcing (customers) to take the existing minimums.”

The CEO continued: “If they want to go to a lower minimum in order to be in a more comfortable situation from the take-or-pay standpoint, we are fine with that. On the other hand, the lower minimum is now the lower minimum. So, if we need to bring contract tonnage to a minimum, that’s the new minimum.” What’s happening, however, is more of the opposite, according to Goncalves.

He explained clients are asking to raise their minimums because at this time, their main goal “is to have steel, not to negotiate a price. So fixed prices are gone.”

The CEO added that a “good number” of clients believe that prices have peaked and being on the discount will help them going forward. “On the other hand, I believe that steel prices are not at a peak. So, we are going all index and with low discounts, lower discounts to freight, things like that.”

In response to a question from Wells Fargo’s Timna Tanner, Goncalves elaborated: “We are changing the structure of our contracts and the minimum of tonnage contracted by clients right now in the usual contracts with our individual customers are now at a take-or-pay. So, it’s no longer a wishful thinking thing. It’s a take-or-pay.”

He stressed: “The minimum is the minimum. You commit with a minimum if you don’t take, you’re going to have to pay. And the clients are accepting more than, I would say, more than 55% to 60% of clients already signed. And the other ones, they haven’t signed yet because they were not presented with the contract. Now the problem is no longer price. The problem is having access to steel. We are giving that.”

The CEO added: “We are changing the structure of contracts. Very soon, this will be the new norm in the industry. It started here with Cleveland-Cliffs. We’re proud of that.”

Nucor, meanwhile, increased its Consumer Spot Price for HRC to $1,255 per ton, up $15 from last Monday.

Market participants tell WSD most mill lead times are 9-10 weeks.