Cleveland-Cliffs Expects 2027 Will Be a Very Good Year With Help From Tariffs

Coming into Monday, shares of steel maker Cleveland-Cliffs have fallen 9% this year. (Photo by Cole Burston) (AFP via Getty Images)

Key Points

• Cleveland-Cliffs reports third-quarter Ebitda of $612 million, beating Wall Street expectations of $601 million.
• CEO Lourenco Goncalves says 50% tariffs on raw steel are supporting the domestic industry by raising prices and reducing imports.
• Cleveland-Cliffs expects 2027 adjusted Ebitda to exceed $4 billion, well above Wall Street projections of $2.5 billion.

Steel maker Cleveland-Cliffs sees good times getting better next year, with help from tariffs and new customer contracts.

Cliffs on Monday reported third-quarter earnings before interest, taxes, depreciation, and amortization (Ebitda) of $612 million from sales of $5.6 billion. Wall Street was looking for Ebitda of $601 million from sales of $5.7 billion. A year ago, Cliffs reported third-quarter Ebitda of $143 million from sales of $4.7 billion.

Higher prices helped profitability. Benchmark steel prices averaged roughly $1,250 per metric ton in the quarter, up from closer to $850 per ton a year ago. Current prices are about $1,350 per metric ton.

“The trade environment continues to support a healthy American steel industry,” said CEO Lourenco Goncalves in a news release. Tariffs on raw steel are 50%, which is pushing up domestic prices and reducing imported product.

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“Our customers increasingly recognize the value of a reliable domestic supply chain,” added Goncalves. “As a result, our 2027 outlook has improved materially since our last earnings call … Based on the new contracts we have already signed with our clients and prevailing index price forecasts, we would expect our 2027 adjusted Ebitda to exceed $4 billion.”

That’s new guidance —and it’s good guidance. Wall Street currently projects $2.5 billion. Cliffs generated a recent annual peak of $5.3 billion in 2021 Ebitda. Back then, steel prices peaked at roughly $2,000 per ton.

Spot steel prices, of course, don’t always translate directly into realized pricing for steel mills. A lot of business is done on annual contracts. The embedded pricing in those contracts is clearly rising faster than Wall Street expected.

Guidance and the strong current results were boosting Cliffs stock. Shares were up almost 12% at $13.55 in premarket trading, while S&P 500 futures were up 0.4% and Dow Jones Industrial Average futures were down 0.3%.

Other steel stocks were up as well. Nucor and Steel Dynamics shares rose 1.4% and 1.9%, respectively.

Coming into Monday, Cleveland-Cliffs shares have fallen 9% this year.

Four the fourth quarter, Cliffs expects Ebitda of $715 million. Wall Street currently projects about $700 million. That’s another bit of good news.

Write to Al Root at allen.root@barrons.com.

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