Cleveland-Cliffs is earning like 2023 again, on more than twice the debt

Cleveland-Cliffs makes flat-rolled steel in the US and Canada. The largest share of its tons goes to service centres and other buyers on annual contracts, while carmakers buy on separate terms. In the September 2026 quarter its operating income was $311 million, close to the $325 million it earned three years earlier on almost identical sales. The income statement is back roughly where it stood then. The balance sheet is not: long-term debt was $7,645 million at the end of September, against $3,458 million three years before, more than twice as much. Net interest expense took nearly half of last quarter's operating income.

Higher steel prices and lower unit costs lifted the quarter. Adjusted EBITDA, the company's measure of earnings before interest, tax, depreciation and amortisation, more than doubled from the quarter before to $612 million, ahead of the $575 million management had guided in July. Selling prices per ton rose about as much as guided. Shipments fell short of the July guidance, and the chief financial officer named unit costs, which fell faster than planned, as the main source of the beat.

Management's answer to the debt is 2027. The company said it expects adjusted EBITDA to exceed $4 billion next year, its first figure for that year. That is more than twice the total implied for this year, calculated from nine months of results plus the company's fourth-quarter guidance.

Much of that rests on contracts being signed now. The annual agreements reset at the start of next year. In July management put the gain from resetting fixed-price contracts at $500 million a year. This time the chief executive said the new terms should add more than $1 billion of EBITDA year on year before any move in the price index the contracts follow, and that 55% to 60% of clients had signed. Fixed prices are giving way to index pricing with small or no discounts, and a customer's committed minimum tonnage must now be paid for even if it is not taken. As he put it: "The minimum is the minimum. You commit to the minimum. If you don't take, you're going to have to pay." An analyst on the call read the company's slides as showing a smaller repricing gain, so the two figures may not be measured the same way.

The cash has not caught up with the profit. Over the first nine months, operating cash flow fell $332 million short of capital spending, calculated from the reported cash-flow statement. Long-term debt barely moved during the quarter. The chief executive expects a major debt reduction in the fourth quarter from stronger cash flow and property sales, though only one small sale closed in the third quarter and the rest are contracted to close in the fourth. The company says it remains on track to bring net debt under 2.5x EBITDA by the middle of next year, and the chief executive ruled out selling new shares to get there.

Spending cuts will not supply the money either. The company now plans to reline a blast furnace at Burns Harbor in April 2028 rather than next year, keeping its output in the meantime, yet the chief financial officer said capital spending will still rise next year, to just over $1 billion. Paying down the debt therefore depends mainly on earnings and the property sales, and the company's path to more than $4 billion rests on the contract resets as well as the strength already visible in the second half of this year.

Two things could make the contract gain smaller than it sounds. Index pricing ties next year's results to the steel price itself: the chief executive said a good number of clients believe prices have peaked, while he does not. The company also credits tariffs with keeping imports well below their earlier level, so the price it is indexing to depends partly on trade policy. And the clients who had not yet signed, along with the carmakers on separate contracts, are still to be settled.