Steel Mills

Cliffs Ups Forecast for '22 Steel Prices on Contract Resets, Wide HRC-CRC Spread
Written by Michael Cowden
April 22, 2022
Cleveland-Cliffs Inc. expects record free cash flow this year thanks to fixed-price contracts resetting higher and a more bullish outlook on average selling prices in general.
The Cleveland-based steelmaker predicts that average selling prices for the year will be $1,445 per ton ($72.25 per cwt), up $220 per ton from prior guidance of $1,225 per ton.
“Despite the decline in spot prices for steel from Q4 to Q1 and its lagged impact on our results, we were able to continue to deliver strong profitability,” company chairman, president and CEO Lourenco Goncalves said in comments released with earnings data on Friday, April 22.
Contract prices are typically based on spot prices, often on a monthly or quarterly lag – meaning that lower prices spot prices will flow through to contracts a month or a quarter later.
By the Numbers
Recall that hot-rolled coil prices started the year at $1,600 per ton ($80 per cwt) before falling nearly 38% to $1,000 per ton in early March, according to SMU’s interactive pricing tool. Prices subsequently shot higher on the supply shock caused by Russia’s invasion of Ukraine.
External sales volumes also fell: They were 3.64 million tons in the first quarter of this year, down 12% from 4.14 million tons in the first quarter of last year
But while sales volumes were lower, profits were sharply higher.
Cliffs recorded net income of $801 million in the first quarter of 2022, up nearly 20-fold from $41 million in the first quarter of 2021 on revenue that rose 48% to nearly $6 billion over the same period.
Steelmaking operations accounted for the bulk of that revenue at $5.8 billion – with 31% ($1.8 billion) sales to distributors and converters, 28% ($1.6 billion) sales to the automotive sector, and 27% ($1.5 billion) sales to the infrastructure and manufacturing markets.
Another 14% (or $816 million) were sales to other steelmakers, Cliffs said.
Raw Materials
Cliffs did not specify whether those sales to other steelmakers were for blast furnace pellets, alternative metallics such as hot-briquetted iron (HBI) and direct reduced (DRI), or semi-finished goods such as slabs.
But the company again stressed its independence when it comes to raw materials – something Goncalves also touted during a visit to the company’s steel mill in East Chicago, Ind., earlier this month.
“The Russian aggression toward Ukraine has made it absolutely clear to everyone what we at Cleveland-Cliffs have been explaining to our clients for some time: overly extended supply chains are weak and prone to break down, particularly steel supply chains that are dependent on imported feedstock,” he said.
Nucor made similar comments on Thursday, when company president and CEO Leon Topalian said the Charlotte, N.C.-based steelmaker “immediately” halted imports of Russian raw material following the invasion of Ukraine in late February, something it was able to do in large part because of its own captive scrap and DRI supplies.
Price Outlook
Cliffs is more bullish on prices for the balance of the year because of fixed-price contracts set to expire on April 1, 2022. Those contracts are resetting at higher-than-expected levels.
The company in addition thinks a higher futures curves implies an average hot-rolled coil price of $1,300 per ton for the year.
Also, spreads between hot-rolled coil and cold-rolled coil have been wider than anticipated, the company said.
SMU’s hot-rolled coil price stands at $1,480 per ton and our cold-rolled price at $1,875 per ton – a spread of $395 per ton. This time last year, hot-rolled coil prices were $1,410 per ton and cold-rolled prices $1,580 per ton – a spread of $170 per ton, according to our interactive pricing tool.
By Michael Cowden, Michael@SteelMarketUpdate.com

Michael Cowden
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