Cleveland-Cliffs' Strategic Multiyear Steel Contracts and Their Implications for Tariff-Driven Market Stability

In a steel industry grappling with inflationary pressures and geopolitical trade tensions, Cleveland-Cliffs Inc. (NYSE: CLF) has emerged as a case study in strategic adaptation. The company's recent shift to multiyear fixed-price contracts with U.S. automakers—General Motors, Ford, and Stellantis—represents a calculated move to stabilize cash flows, hedge against volatility, and capitalize on a policy-driven pricing environment. For investors, this strategy raises critical questions: How do these contracts align with long-term value creation in a high-tariff world? And what risks remain in a sector still vulnerable to global overcapacity and decarbonization pressures?

The Tariff-Driven Tailwind and Contractual Hedging

The Trump administration's 50% tariffs on imported steel and aluminum, imposed in June 2025, have reshaped the U.S. steel landscape. By effectively eliminating foreign competition, these tariffs have created a pricing floor for domestic producers, allowing Cleveland-Cliffs to raise hot-rolled coil prices to $950 per ton—a 74% increase from May 2024 levels. The company's multiyear contracts, which lock in pricing for up to three years, now serve as a dual-purpose tool: they provide automakers with cost predictability while securing long-term demand for Cliffs' vertically integrated operations.

These agreements are particularly significant given the company's dominance in the U.S. automotive steel market (36% of revenue). By aligning with automakers' need to manage supply chain costs, Cleveland-Cliffs has insulated itself from short-term price swings. For example, the contracts' fixed pricing structure mitigates the risk of margin compression that typically accompanies cyclical downturns. This is a stark contrast to the company's previous reliance on one-year agreements, which exposed it to sudden price volatility.

Operational Restructuring and Financial Resilience

Beyond contractual stability, Cleveland-Cliffs has undertaken aggressive cost-cutting measures to strengthen its balance sheet. The idling of six underperforming facilities—ranging from mines to rail operations—has generated $300 million in annual savings. These actions, combined with a $50 per ton reduction in steel unit costs for 2025, have improved liquidity to $2.7 billion and secured note capacity of $3.3 billion. Such financial flexibility is critical in a sector where capital intensity and cyclical demand are persistent challenges.

The company's exit from a $500 million-a-year unprofitable slab supply contract with ArcelorMittal further underscores its focus on margin improvement. Analysts project this move will add $500 million in annual EBITDA by 2026, accelerating free cash flow generation. KeyBanc Capital Markets' Philip Gibbs has upgraded CLF to Overweight, forecasting 2025 EBITDA of $419 million and 2026 EBITDA of $1.86 billion—a 300% increase from 2024 levels.

Risk Mitigation in a High-Tariff Environment

While tariffs have provided a near-term tailwind, Cleveland-Cliffs' long-term success hinges on its ability to navigate structural risks. The company's reliance on blast furnace technology—less energy-efficient than electric arc furnace (EAF) competitors like Nucor—poses a challenge in a decarbonization-driven market. However, Cliffs' vertical integration (spanning iron ore to finished steel) reduces exposure to raw material price swings, a key differentiator in a sector where input costs can erode margins.

Global overcapacity remains another concern. Despite U.S. protectionism, China and India continue to flood global markets with low-cost steel. Yet, Cleveland-Cliffs' focus on high-margin automotive and construction steel—segments less susceptible to price undercutting—mitigates this risk. The company's C-STAR advanced high-strength steel system, tailored for EVs, positions it to benefit from the 21 million global EV sales projected by 2030.

Investment Implications and Strategic Outlook

For investors, Cleveland-Cliffs' current valuation appears compelling. At a 7x 2026 EBITDA multiple, the stock trades at a discount to its historical average of 10x, even as the company's liquidity and cost discipline improve. The potential for asset sales (e.g., Riverdale and Steelton properties) could further enhance shareholder returns, with proceeds estimated in the billions.

However, caution is warranted. A shift in U.S. trade policy or a slowdown in automotive demand could erode pricing power. Additionally, the company's debt load—though manageable with $2.7 billion in liquidity—remains a concern in a high-interest-rate environment. Investors should monitor the sustainability of current tariffs, the pace of EV adoption, and Cliffs' progress in decarbonization initiatives.

Conclusion

Cleveland-Cliffs' multiyear contracts and operational restructuring position it as a beneficiary of the Trump-era tariff regime and a leader in the U.S. automotive steel market. While structural risks persist, the company's vertical integration, cost discipline, and strategic focus on high-margin products create a robust foundation for long-term value creation. For investors seeking exposure to a sector poised for reshoring and industrial revitalization, CLF offers a compelling case—provided they are prepared to navigate the inherent volatility of a cyclical industry.

Investment Advice: Buy Cleveland-Cliffs for its tariff-driven pricing power and operational turnaround, but maintain a medium-term horizon and hedge against trade policy risks. Target entry points near $12–$13 per share, with a price objective of $14–$16 by mid-2026.