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Cleveland-Cliffs Stock Leaps After Q3 Earnings Beat, Steel Price Outlook

Cleveland-Cliffs forecast higher average steel selling prices for next year, adding to the market reaction to stronger-than-expected third quarter earnings.

Cleveland-Cliffs  (CLF) - Get Cleveland-Cliffs Inc Report shares powered higher Friday after the steelmaker posted stronger-than-expected third quarter earnings and forecast higher steel selling prices for 2022.

Cleveland-Cliff said earnings for the three months ending in September were pegged at $2.33 per share, up from a loss of 2 cents per share last year and 7 cents ahead of the Street consensus forecast. Group revenues, the steelmaker said, surged more than five-fold from last year to $6 billion, firmly ahead of analysts' forecasts of a $5.64 billion tally.

Looking into the coming year, Cleveland-Cliffs said it sees higher average selling prices, thanks in part to the "renewal of several annual fixed price sales contracts with a significant number of our most important customers."

The forecast challenges Wall Street's outlook on prices, which Goldman Sachs analyst Emily Chieng recently noted were trading 140% north of their historical levels this year, at around $1,500 per ton, and ripe for correction. 

"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, allowing us to continue to grow our already strong profitability and to further strengthen our balance sheet," said CEO Lourenco Goncalves.

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Cleveland-Cliffs shares were marked 6.15% higher in early trading following the earnings release to change hands at $22.45 each.

Rival U.S. Steel  (X) - Get United States Steel Corporation Report shares were marked 1% lower at $22.00 each while Nucor  (NUE) - Get Nucor Corporation Report slipped 0.55% to $101.53 each. 

U.S. Steel said it expects adjusted current quarter profits of around $2 billion, a 50%-plus increase from the prior period, adding it's reduced its overall debt by around $2.7 billion so far this year, excluding that linked to its 2019 acquisition of Big River Steel.

However, capacity increases including U.S. Steel's plans for a $3 billion mill that will start producing in 2024 -- will test the 'higher-for-longer' thesis (for broader steel prices) as the government moves to finalize its multi-trillion stimulus bill.

Overall, U.S. mills -- including U.S. Steel -- have produced 71.4 million tons of crude steel so far this year, according to data from the American Iron and Steel Institute, a 20.26% increase from the same period last year. Average capacity utilization is now at 81.1%, up from just 66.8% over the same period last year.