What happened

Shares of Cleveland-Cliffs (CLF -1.18%) were rallying today, up about 9% as of 10:30 a.m. ET, even as the S&P 500 was down a significant 1.8% at that time.

Obviously, that points to a company-specific announcement driving today's gains. This morning, Cleveland-Cliffs announced an increase in steel prices and a lower cost per unit for next year. That's quite the feat, defying today's lower commodity prices.

So what

With recession fears in the air right now, one would think commodity producers would be under pressure as demand concerns weigh on all cyclical companies. But Cleveland-Cliffs said this morning that thanks to negotiations with customers, its fixed-price contracts for certain types of its automotive steels for 2023 should be higher than the price it received in 2022.

More specifically, management pointed to direct carbon steel for automotive customers, which is Cleveland-Cliff's largest end-market segment, and which operates completely on fixed-price contracts, not spot-price contracts. In recent negotiations, those prices were increased to $1,400 per ton for 2023, up from $1,300 in 2022. Overall, fixed-price contracts will make up about 40% to 45% of its volumes in 2023.

Spot prices for steel are much lower than these figures, so the fact that Cleveland-Cliffs was able to negotiate such high prices is quite an achievement. It also points to the importance of the company's specialized steel products for autos, which are clearly garnering a big premium in the market over commodity steels.

Even more encouraging, thanks to efficiencies and maintenance achieved in 2022, management also expects its steelmaking costs to decline in 2023. Given the attractive combination of better-than-expected overall pricing on automotive steel and lower costs, it's no wonder Cleveland-Cliffs stock is outperforming today.

Now what

The stock soared in the aftermath of the Ukraine war earlier this year, but has been cut in half since its March 2022 highs over recession fears. Given the decline in the stock price and a rock-bottom price-to-earnings ratio of just 3.4 -- which suggests a material decline in revenue and earnings in the year ahead -- it's no wonder Cleveland-Cliffs stock is rising today on the surprisingly good news. It appears management has been quite savvy in its contract negotiations, as well as managing the company's cost structure.

For those looking at commodity companies as a potential contrarian buy if we go into a recession, Cleveland-Cliffs should be on your watch list.