Enkhmanal 🟠@Enkhmanal
$CLF: The Most Asymmetric Setup in the AI Power Trade
Cleveland-Cliffs is the only name in the AI Power complex that hasn't re-rated. PWR, GEV, ETN, HUBB, VRT — all multi-baggers off the data center buildout. CLF is still trading like a busted 2022 cyclical despite owning the only domestic GOES asset in the United States, a transformer plant ramping this half, and 1GW+ of powered industrial land sitting on the balance sheet at effectively zero implied value.
The Q1 2026 print and call last week was the cleanest setup on this name in two years.
The earnings cadence is now visible
Goncalves was unusually direct: Q1 was the trough, Q2 will be the best quarter in nearly two years, and Q3 will be "much better than Q2" with maximum operating leverage. The mechanics back it up:
- Pricing lag has extended from ~1 month to ~2 months as order books fill. Translation — current spot strength flows through later, not today. ASPs already +$55/ton QoQ in Q1, guided +$60/ton again in Q2.
- The $80M energy hit from February's gas price spike was a one-timer. Removed in Q2.
- Final ArcelorMittal slab shipments completed in Q1 (175k tons, drag now done). The annualized EBITDA tailwind from contract termination starts flowing in full.
- Q2 outages add ~$15/ton on cost; Q3 is outage-light. That's the operating leverage quarter.
- Working capital release: AR built ~$130M in Q1 as March shipments accelerated. Q2 collections + higher EBITDA = "major cash collection quarter."
If HRC pricing simply holds and management executes guidance, Q3 is the print where 2026 consensus EPS resets meaningfully higher. The street is still anchored to Q4 2025 trough numbers.
Tariffs are now structural, not tactical
Imports are at the lowest level since 2009. Section 232 sits at 50% across the top 10 importing countries — Canada, Brazil, Mexico, Korea, Japan, Germany, all at 50%. Total flat-rolled imports running ~340k tons/month, less than half the 2024 average of 750k.
The kicker most are missing: distribution transformers were just added to the derivative product tariff list. That's a direct tailwind to the Weirton transformer plant ramp and an indirect tailwind to Butler Works GOES output, because it walls off the domestic market from imported finished transformers. Goncalves called it out explicitly — "exactly the right outcome."
This isn't a tariff trade in the cyclical sense. It's a regime change. Melted-and-poured + 50% Section 232 + derivative enforcement is structural protection for the only fully integrated US flat-rolled producer with domestic ore feed.
The GOES/DPA leg is still a free option
The April 20 Section 303 Defense Production Act determination explicitly named "electrical core steel" as essential to national defense. CLF is the only domestic producer. Butler Works expansion on track for 2028. Middletown Works affirmed. DOE EDF (formerly LPO) financing now opens up — and Section 1706 authority expires September 30, 2026, which forces deployment of capital into qualifying projects.
GOES + transformers is ~7% of revenue today. The ramp pushes that into low double digits over 12–24 months. None of it is in consensus. The market is pricing CLF as a leveraged auto cyclical. The DPA exposure, the Weirton commissioning, the Butler expansion — all sit on top of the base case for free.
The aluminum trade is happening in real time
This was the most underappreciated part of the call. Goncalves: "In my long career in this business, I have never seen so much momentum in substituting aluminum with steel."
Catalysts converging — domestic aluminum plant fire took out ~40% of US automotive aluminum sheet supply, Strait of Hormuz affecting ~8–9% of global aluminum output, Iran strikes hit Iran's largest aluminum plant, aluminum at 4-year highs. Cliffs has proven steel substitution on fenders and other previously aluminum-only parts using the same OEM stamping equipment. New Carlisle EGL line restarted to handle the volume. Toyota Quality Excellence Award in February.
Mix-up, share-up, volume-up — all at once, all flowing to the highest-margin auto book.
The hidden asset: 1GW+ of powered land
Buried on slide 8 of the deck. CLF is sitting on more than 1 gigawatt of idled, powered industrial land — sites with grid interconnect, water access, and infrastructure already in place. $425M of asset sales under contract or closed (~$70M received), management guiding $50M Q2, $100M Q3, balance Q4. 100% of proceeds going to debt paydown.
In a world where hyperscalers are paying premium for any site with utility-scale power and interconnect, this is pure data center optionality embedded in the equity at zero implied value. Watch the buyer profile on the remaining contracts.
The chart: 50 SMA reclaim is the trigger
Daily setup is now genuinely constructive. $CLF reclaimed the 50 SMA at $9.43 and is now sitting at $10.51 with the 50 SMA starting to flatten and curl up. 200 SMA at $11.44 is the next clear target. Above $11.44, the path opens to $14–15 (the late-2025 highs) where the bullish consensus PTs cluster.
The recovery off the March-April lows around $8 has the right shape — higher lows on rising volume, with the April 20 post-earnings response ripping the stock from sub-$9 to $9.96 intraday. The market is starting to front-run the Q2 inflection.
The line in the sand is the 50 SMA at ~$9.43. As long as daily closes hold above it, the structure stays bullish and the path of least resistance is up toward the 200 SMA. Lose $9.43 on a daily close and the setup resets.
Weekly context: the post-2022 base from $7 to $15 is now four years deep. Long-duration accumulation at deep cyclical lows tends to resolve to the upside when the macro inflects — and the macro just inflected via tariffs, DPA, and the auto recovery hitting at the same time.
Setting up the trade
Three independent bullish legs stacking on top of each other:
1. Tariff regime + slab contract end + working capital release = visible Q2/Q3 earnings inflection
2. Aluminum-to-steel substitution = mix and share gains in the highest-margin auto book
3. GOES/DPA + 1GW powered land = free options the market isn't paying for
Sell-side PT cluster of $11.86–$15 implies 13–43% upside on consensus alone. If Q2 prints clean and Q3 confirms the operating leverage, consensus migrates to the high end of that range. The DPA leg layered on top is what gets you to $16–18 over 12–18 months as the GOES/transformer revenue mix moves toward double digits.
Above the 50 SMA is the trade. Below it, you wait.
