The US steel sector, once on the ropes from fierce global competition, is now riding a wave of trade protections and surging prices.
But the boom might be short-lived, according to analysts at UBS.
As the market braces for an influx of new domestic capacity and a potential slowdown in demand, the outlook for steel stocks is anything but certain. While tariffs and robust federal spending have fueled steel prices to record highs, a delicate balancing act between supply pressures and shifting consumer demand threatens to derail the sector’s momentum in 2025.
UBS analysts expect US steel prices to remain elevated, bolstered by increased tariffs on Canadian, Mexican, and Chinese steel imports.
UBS has upgraded Nucor Corp (NYSE:NUE) and Steel Dynamics Inc (NASDAQ:STLD) to ‘Buy’ with price targets of $160 and $149 respectively, citing a stronger price outlook for US steel and the potential benefits of trade protections. Shares of Nucor rose almost 5% on Monday morning, while Steel Dynamics shares were up 3.1%.
Higher steel prices
Despite a 16% drop in steel equity prices since December highs, the analysts believe recent tariffs and trade protections will continue to support a higher steel price environment.
"The level of import protection has positively surprised us...leading to rapid price growth which provides a platform for earnings momentum and potential consensus upgrades through 2025,” analysts wrote.
"We see a sector that should still be a net beneficiary of the tariffs enacted so far."
The recent volatility in the US steel sector has been marked by the impact of Section 232 updates, which have led to higher steel prices and trade disruptions. UBS analysts expect US steel prices to remain elevated, bolstered by increased tariffs on Canadian, Mexican, and Chinese steel imports.
Still some caution
While optimistic about the long-term outlook, UBS remains cautious on certain segments of the market. The analysts highlight potential risks in the rebar market, particularly with the anticipated supply increases in 2025, which could pressure prices in the sector.
US steel mills also face challenges in balancing supply and demand as a wave of new capacity ramps up, including projects from Nucor’s BR2, Steel Dynamics’ Sinton, and Nucor’s West Virginia facilities. The analysts forecast a slow recovery in overall demand, estimating a 1% decline in steel demand in 2025.
On a macroeconomic front, UBS believes that concerns about a trade war escalation and retaliatory tariffs may have been overstated. While the first quarter of 2025 has shown weak demand—falling into the bottom fifth percentile of historical data—UBS projects a recovery in the second half of 2025. This rebound is expected to be supported by a recovery in traditional steel markets, along with federal stimulus programs aimed at infrastructure development.
The firm also sees potential for domestic steel shipments to benefit from lower imports, estimating a 2.5% increase in domestic shipments because of import relief. That means US steel producers will continue to benefit from the strong pricing environment, even if demand softens, with tariffs protecting against competitive import pricing.