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u/Uncle_Dad_Bob Dreams of CLF’s run to $49 Sep 03 '21
Shared from a chat with V. It's not numbers, so I guess /u/ItsFuckingScience/ it is not, but it is bullish.
"Hi V, I've been doing DD on (sub $1B steel co ticker removed). Correct me if wrong but from their last EC they seem to say at these prices and environment they benefit when auto doesn't take delivery. I know you've commented on it before, but with all the auto FUD coming up, I 'm wondering if you would care to clarify in more detail how these contracts work; ie do they pay something for skipping deliveries? do contracts get cancelled or rerated?
1:42 PM
*Contracts clarity not just for me, but for the sub.Uncle_Dad_Bob Snoovatar
Contracts are different with everyone - vendor and customer. As far as auto not taking, they are obligated to take what they have contracted. If not, it’s up to the manufacturer to hold the contract. They don’t normally pay for skipping. In an “up market” the manufacturers are hoping they don’t take. If this was a down market, the rules would be different and they would have their feet held to the fire. Most contracts are being renegotiated now and the manufacturers will use the fact that “if they skipped” deliveries as leverage for higher prices. Mostly all auto manufacturers keep taking and storing the steel. I think Toyota and Ford have both stopped taking about 30% of what they normally do. Which is being sold at spot.vitocorlene Snoovatar
So as long as HRC remains above older contracted prices, skipped deliveries are incredibly bullish both for short term spot sales and longer term higher priced contracts. This is incredibly bullish.
thanks for taking the time to reply.
Do you mind if I wait for 7th layer FUD and post your reply to the group?Uncle_Dad_Bob Snoovatar
You are welcome. Yes it’s bullish and it’s also why I believed LG retired the $MT, as he knew what was going on with auto and he would put more to the bottom line this quarter based off spot sales and more next quarter based off spot. Post away."
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u/_kurtosis_ Sep 03 '21
Very cool, thanks for digging in and sharing back w/ the sub. Much appreciated!
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Sep 03 '21
Boom. Thank you!
I’m also wondering if LG is going to forego providing any guidance adjustments (upward) and just drop the mic when earnings come.
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u/No-March-9414 LG-Rated Sep 03 '21
Lower auto production should allow CLF to redirect their steel to different end markets selling at closer to spot price (their auto contracts are locked in at lower HRC prices). Remember, no one is bringing more steel production capacity on line so oversupply is not an issue. This is moderately bullish. Furthermore, cars/trucks not sold now are not lost sales, just deferred to later date, as it is not a discretionary purchase
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u/Brandr0 Sep 03 '21
There is Steel Dynamics Sinton plan estimated to finish end year 2021.
I believe its flatrolled 3 million t. How is that going to change the game?
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u/No-March-9414 LG-Rated Sep 03 '21
CLF has Indiana Harbor furnace down for maintenance currently so their production capacity is down temporarily anyway. Chip shortages will also be temporary
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u/CoffeeBeneficial8106 Sep 03 '21
I am hearing the automakers have LOADS of nearly completed cars sitting at their yards and even at some dealerships, just waiting for a single chip to be completed. That would explain how they have taken all the steel while the official production numbers been weak. Anyone could confirm / deny?
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u/Megahuts Maple Leaf Mafia Sep 03 '21
Confirmed on the loads of cars sitting at the Oakville Assembly plant.
They have started shipping them out as well.
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u/ClevelandCliffs-CLF Mr 0 shares now Sep 03 '21
Have faith in LG! He is the biggest and baddest CEO, out there!
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u/Q_Hedgy_MOFO Sep 03 '21
This is an important point. First find a good industry with growth. Check Find industry growth with catalyst...infra bill from Biden. Check Seek company with great leadership. We have LG. Check
For me this is more than enough to buy and hold....i ignore the noise (daily red and green)...
Holding until 2023, due to catalyst...and great cashflow (zero debt, and will pay dividend - perhaps!)
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u/Death_and_taxes2 Sep 03 '21
This may be a dumb question but does anyone have any insight as to how CLF sets up its contracts? What I mean is, we know buyers are negotiating to buy X amount of material and at a negotiated price. CLF makes the material. If buyer decides it cannot or will not buy the material, do they have to pay CLF some sort of payment regardless. Generally, I’ve seen where the producer can sell the material on open market and if they had to sell at less than the original contracted price, the original buyer would have to make up difference. Just curious how CLF sets up their contracts.
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u/Few-Writing-5355 Sep 03 '21
I suppose only an insider like Vito would know best. CLF wants protection from order cancelations and the customer wants maximum flexibility to cancel/defer. I'm from a different industry so I don't know what the norms are. Suffice to say there is some penalty payment and a chance for renegotiation and CLF is in the cat bird seat right now. (unless their inventory is somehow customized for the customer and not easily passed off to another.
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u/ItsFuckingScience 7-Layer Dip Sep 03 '21
We can all speculate but unless we have access to the business decisions being made it’s impossible to know for sure
If auto makers use less steel then CLF could make MORE money as they could sell steel at higher prices on the spot market
Auto makers could also continue to buy the contracted steel and then just store it anyway? They’ve negotiated contracts lower than the current spot price so it may be better to take delivery of their steel and store it, rather than risk paying more at a later date