Steel Stocks Surge on Tariffs—But Can the Rally Last?

The Trump administration's abrupt removal of exemptions on steel tariffs in early 2025 has sent shockwaves through global markets, triggering a sharp rise in U.S. steel stocks. Companies like Nucor (NUE) and U.S. Steel (X) saw their shares climb as investors bet on a revival of domestic production. But with global steel capacity utilization hovering near decade lows and trade tensions escalating, the question remains: Is this a sustainable boom, or a fleeting illusion?

The Immediate Impact: Tariffs as a Shot in the Arm
When Trump reinstated the 25% tariff on all steel imports in February 2025—removing exemptions granted to allies like Canada and the EU—the immediate effect was a surge in domestic demand. U.S. mills, which had been operating at just 74.6% capacity in April, saw utilization rebound to 77.5% by May as automakers and construction firms turned to local suppliers to avoid retaliatory tariffs. show a clear correlation between tariff implementation and production upticks.

Yet this rally is fragile. While tariffs shield domestic producers, they've also sparked a trade war. China retaliated with 34% tariffs on U.S. goods, while the EU delayed but ultimately imposed levies on bourbon, peanut butter, and steel itself. Automakers, already reeling from 2025's 12% production drop, now face higher costs for imported parts, which could dent demand for the steel they need.

The Overhang of Global Oversupply
The U.S. market is but a small piece of a much larger puzzle. Global steel capacity utilization dipped below 75% in early 2025—its lowest since the 2008 crisis—as China's property slump sent excess steel flooding into export markets. With 59.9 million tons of new capacity under construction globally, oversupply could grow even worse.

Consider this: While U.S. scrap prices hit $475/ton in March—a 25% spike—global finished steel prices are still falling. J.P. Morgan forecasts U.S. hot-rolled coil prices at $900/ton for Q2, down 11% from 2024 levels. The OECD predicts a price trough by mid-2025, with recovery delayed until 2027. reveals a widening gap, squeezing margins for all but the most efficient producers.

The Silver Lining: Green Steel and U.S. EAF Dominance
Not all steel is equal. The shift to electric arc furnace (EAF) technology—now accounting for 70% of U.S. production—offers a critical edge. EAFs use scrap metal instead of iron ore, cutting CO2 emissions by 80-90% and aligning with global decarbonization goals. Nucor, which relies entirely on EAFs, has been a standout performer. Its $475/ton scrap costs are a headache, but its ability to pivot to high-margin specialty steels for EV batteries and wind turbines positions it to thrive in a low-carbon economy.

Investors should favor firms like Nucor that are:
1. EAF-focused: Lower emissions and scrap-based inputs shield them from iron ore volatility.
2. Diversified into green markets: Aerospace, defense, and renewables demand premium-priced specialty steels.
3. Geographically nimble: Companies with exposure to resilient markets like the Middle East's infrastructure boom (e.g., Dubai's Expo 2030) or India's urbanization drive.

The Risks: Trade Wars and the China Wild Card
The biggest threat is not supply—it's policy. A U.S. recession (J.P. Morgan assigns a 60% chance by 2025) could slash demand by 30%, while China's 1-trillion-yuan fiscal stimulus—expected by Q3—might arrive too late or too weak to revive its steel-hungry property sector. Meanwhile, the EU's Carbon Border Adjustment Mechanism (CBAM), set to expand in 2026, could penalize U.S. producers lacking green credentials.

Investment Strategy: Pick the Winners, Hedge the Risks
The steel sector isn't a buy-all market. Here's how to navigate it:
- Buy EAF champions: Nucor (NUE) and Steel Dynamics (STLD) dominate U.S. scrap-based production.
- Dodge blast furnace relics: Legacy firms reliant on high-emission blast furnaces (e.g., Tata Steel) face existential threats from both CBAM and oversupply.
- Short global steel giants: Companies like China's Baowu Steel (600019.SS) face structural overcapacity and weak domestic demand.
- Monitor scrap prices: A sustained rise above $500/ton could force curtailments—watch NUE's quarterly reports for clues.

Conclusion: A Volatile Landscape Demands Discernment
The tariff-driven steel rally has legs—but only for companies that can navigate a world of oversupply, trade wars, and decarbonization. Investors who bet on nimble, green-focused U.S. EAF producers while hedging against global macro risks will position themselves to profit when the sector's next phase begins. As the saying goes: In steel, the smart money follows scrap—and sustainability.