Materials Sector Earnings Forecast to Rise 20% in 2026 Amid Steel Tariffs

The U.S. materials sector is poised for a significant earnings rebound in 2026, driven by the 50% Section 232 tariffs on steel and aluminum imports. These tariffs, which have reshaped domestic supply chains and pricing dynamics, are creating a favorable environment for steel and packaging firms to leverage operational leverage and pricing power. According to a Bloomberg Intelligence report, the metals and packaging sub-sectors are projected to see earnings growth of over 30% in 2026, far outpacing broader market trends. This analysis explores how tariff-driven market conditions are amplifying profitability for key players like Nucor and Cleveland-Cliffs while also highlighting the challenges that could temper long-term gains.

Tariff-Driven Pricing Power: A Tailwind for Steel Producers

The 50% tariffs, implemented in June 2025, have effectively priced out foreign competitors, allowing U.S. steel mills to assert control over pricing. For example, Nucor reported a record backlog in Q3 2025, driven by energy and infrastructure demand, with management expressing confidence in sustained pricing power. Similarly, Cleveland-Cliffs raised its hot-rolled steel price to $950 per ton in July 2025, a $40 per ton increase, reflecting its ability to capitalize on reduced import competition.

The tariffs have also triggered a surge in domestic ferrous scrap supply, as international and domestic scrap dealers prioritize U.S. sales over global markets. While this has kept scrap prices from rising in tandem with steel prices, it has indirectly benefited domestic producers by reducing input costs. Argus Media notes that this dynamic is expected to persist in 2026, given continued political support for high tariffs.

Operational Leverage: Scaling Efficiency Amid Demand Surge

The combination of higher pricing and increased demand has enabled steel firms to leverage operational leverage. Nucor's Q3 2025 EBITDA reached $1.3 billion, a stark contrast to its 1.8% margins in Q4 2024. Analysts project EBITDA margins for the steel industry could expand to 18–20% by mid-2026 if pricing power is sustained according to industry analysis. Cleveland-Cliffs, meanwhile, is forecasted to generate adjusted EBITDA of $1.3 billion–$1.7 billion in fiscal 2026, with Fitch expecting average EBITDA margins of 9%.

However, operational gains are not without friction. Steel Dynamics Inc. and Pacific Steel Group have highlighted labor shortages and rising capital expenditures as constraints. The industry's push for automation and green steel initiatives requires skilled labor, which remains in short supply according to recent hiring data.

Packaging Sector: Navigating Tariff-Induced Volatility

The packaging industry, while less directly impacted by tariffs, faces indirect headwinds. UFP Industries aims to achieve $60 million in structural cost savings by 2026 to offset rising material costs. The company's Q3 2025 adjusted EBITDA fell to $140 million, down from $164.9 million in the same period in 2024, underscoring the sector's vulnerability to input price swings according to Q3 results.

Mondi, another key player, reported a first-half 2025 EBITDA of €564 million, below expectations, as tariffs disrupted supply chains and depressed paper prices according to company disclosures. The company's focus on cost optimization and geographic diversification highlights the sector's need for resilience amid ongoing trade tensions.

Challenges and Risks: Beyond the Tariff Hype

While tariffs have bolstered short-term profitability, they also pose risks. The BCG analysis estimates that the 50% tariffs will add $22.4 billion in costs for imported steel and aluminum, with derivative products like structural steel and elevator parts further amplifying the burden. For industries reliant on these materials-such as automotive and construction-higher costs could lead to margin compression and job losses according to BCG research.

Additionally, the U.S. real GDP growth is projected to decline by 0.5 percentage points in 2025 and 0.4 percentage points in 2026 due to the tariffs' broader economic effects according to BCG projections. This macroeconomic drag could temper demand for steel and packaging products, particularly in cyclical sectors like construction.

Conclusion: A Mixed Outlook for Materials Sector Investors

The 2026 earnings outlook for the U.S. materials sector is undeniably bright, with steel firms like Nucor and Cleveland-Cliffs positioned to capitalize on tariff-driven pricing power and operational leverage. However, investors must remain cautious about labor constraints, input cost volatility, and macroeconomic headwinds. For packaging firms, the challenge lies in balancing cost optimization with the need to maintain supply chain flexibility.

As the sector navigates these dynamics, the key will be to differentiate between companies that can sustainably convert tariff-driven demand into long-term profitability and those that may struggle with rising costs and structural inefficiencies.