Cleveland-Cliffs Stock Rises. But Not Because of the Earnings Beat.

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Stock in steelmaker

Cleveland-Cliffs

was rising after the company reported better-than-expected third-quarter numbers. Earnings, however, aren’t what investors will focus on. Cliffs outlook for steel pricing was encouraging.

Cleveland-Cliffs

(ticker: CLF) stock rose about 4.4% in premarket trading.

S&P 500
and

Dow Jones Industrial Average
futures were up about 0.1% and 0.2%, respectively.

In the third quarter, Cliffs earned $2.33 a share from $6 billion in sales. Wall Street was looking for $2.26 a share from $5.6 billion in sales.

Earnings “beats” are good for stocks, but the prospect for higher earnings in 2022 is even a bigger deal for investors.

“The Cleveland-Cliffs business model is based on a significant amount of contract sales,” said CEO Lourenco Goncalves in the company’s news release. “Differently from other steel companies more exposed to spot prices, we believe that our average sales price next year should be higher than in 2021.”

Cliffs’ selling price averaged $1,334 a ton in the third quarter, up from $1,000 a ton in the third quarter in 2020. Year to date, Cliffs’ selling prices have averaged $1,122 a ton, up from $1,011 in 2020.

Contracted steel prices tend to lag behind when spot prices are going up and fall slower when spot prices are going down. Spot prices for hot rolled coil—a key benchmark—have averaged about $1,500 a ton so far in 2021, more than Cliffs’ average selling price. But spot prices averaged about $525 a ton in 2020 through the first nine months of the year when Cliffs’ prices averaged $1,000 a ton.

Cliffs sells a mix of products, not just hot rolled coil, so comparing hot roll prices to any company’s average selling prices is just a guide.

Cliffs has shipped about 12.5 million tons of steel so far in 2021.

Higher prices for commodity producers usually lead to higher earnings. Right now, Wall Street is projecting a drop. Analysts project $6.25 in per-share earnings for 2021 and $4.03 in per-share earnings in 2022.

Benchmark steel prices are up about 200% year over year, but gains have flattened, impacting stocks. Coming into Friday, Cliffs stock was up about 45% year to date, but shares haven’t moved for about three months.

Cliffs management hosts a conference call at 10 a.m. Eastern time to discuss results. Investors will also want more details about the 2022 pricing outlook.

Write to Al Root at [email protected]