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Key Takeaways
- UBS analysts on Monday upgraded shares of steelmakers Nucor and Steel Dynamics, citing higher steel prices stemming from President Trump's tariffs.
- Some steel prices increased by nearly 20 percent in the past month and half since Trump imposed an import tax of 25 percent on all steel.
- Analysts at UBS expect steel prices will cool down later this year, but remain high. This will more than offset a slight decrease in demand.
UBS analysts on Monday upgraded the shares of several U.S. steelmakers, citing Trump's "tariff support."
Steelmakers Nucor NUE and Steel Dynamics STLD were up 4% and 3 % respectively, after UBS analysts upgraded both stocks on Monday to “Buy.”
Steel prices have increased since President Trump signed a decree in early February that imposed a 25% tariff for all imports of steel and aluminum. Nucor has reportedly increased prices eight times since the beginning of the year. The company charges $930/short tonne for hot-rolled coil, an increase of more than 17% from Trump’s tariff orders.
UBS believes that prices will come down over time as new production capacity is added. “However, we are confident that prices will hold in the 800's, supported by a much higher cost curve (on scrap) and higher import parities (on tariffs), even in a bleak demand scenario,” the analysts wrote.
Some economists and analysts warned that Trump’s policies on tariffs, which are intended to boost domestic production, could undermine this goal by raising prices and reducing the domestic demand. UBS analysts are optimistic, however. Demand has been weak so far this year, but they “expect 2H25 demand to benefit from stabilization/recovery in traditional markets & federal stimulus,” including the 2021 Infrastructure Investment and Jobs Act. (Although the Trump administration is currently fighting against freezing all IIJA and Inflation Reduction Act funding.)
Despite President Trump’s support, steel stocks have not kept pace with the soaring prices. Even with Monday’s gains, Nucor’s shares are down 18% from early December, and Steel Dynamics is down 13%. The same economic concerns that have affected the broader stock market have also affected the stocks in the past month.
The analysts wrote: “We believe that the trade war de-rating/sell off could provide an opportunity for NUE/STLD.” UBS on Monday maintained its $149 price target on shares of Steel Dynamics, implying 21% upside from Friday's close. They lifted Nucor's price target by $4 to $160, which represents upside potential of 31%.
