Steeling some gains

Did you think President Trump was done roiling the entire global economy with a single tariff announcement?

Think again.

Late last week, Trump declared that he was upping steel and aluminum tariffs from 25% to 50% as of June 4. Domestic steelmaker stocks leaped on the announcement: Cleveland-Cliffs jumped 23.16% today, while Nucor Corp. increased 10.10%, and Steel Dynamics jumped 10.32%.

While international trading partners were none too thrilled by the surprise tariff hike, the news was a welcome boon to the US steel industry, which has been struggling to gain momentum over the past year: Cleveland-Cliffs is down 58% over the past 12 months, and Nucor Corp has declined 27.82%, while Steel Dynamics is only up 2.34% over the same period.

Don’t forget about the major merger shaking up the US steel industry, too. Japan’s Nippon Steel is acquiring US Steel for $55 per share. The Biden administration had previously blocked the deal, arguing that the merger would put US national security at risk. But at the Friday rally, Trump argued that tariffs would help US Steel, as well as American steelworkers.

Shares of US Steel fell 0.59% today, but have jumped 21% over the past month.

Are steel stocks really a steal?

American steel firms are up big today for good reason. UBS analyst Andrew Jones wrote in a note that, for now, producers have enough spare capacity to meet the increased demand that will come as tariffs force buyers to pivot away from international suppliers. The home court advantage of producing steel more cheaply than foreign competitors means US steelmakers can increase prices at will, in turn boosting margins.

But that boon won’t last forever, Jones warned. As steelmakers' excess capacity is more fully utilized, prices will eventually begin to stabilize. “However, in a consolidated market, we expect producers to achieve prices close to higher import breakevens if the tariffs stick,” wrote Jones.

Jones said Nucor and Steel Dynamics are buys right now, and both stocks have consensus ratings of “overweight” from Wall Street analysts. He’s neutral on Cleveland-Cliffs, which has a “hold” consensus rating.—LB