The Zacks Steel Producers industry is well poised to benefit from an uptick in steel prices this year from last year's lows. A resilient non-residential construction market and firm demand in the automotive space also act as tailwinds for the industry.
Rising U.S. steel prices have created a favorable landscape for American steel producers. Tightened supply driven by tariffs on steel imports and higher end-market demand, is expected to support steel prices. Players from the industry, such as Nucor Corporation NUE, Steel Dynamics, Inc. STLD and United States Steel Corporation X, are set to gain from these trends.
About the Industry
The Zacks Steel Producers industry serves a vast spectrum of end-use industries such as automotive, construction, appliance, container, packaging, industrial machinery, mining equipment, transportation, and oil and gas with various steel products. These products include hot-rolled and cold-rolled coils and sheets, hot-dipped and galvanized coils and sheets, reinforcing bars, billets and blooms, wire rods, strip mill plates, standard and line pipe, and mechanical tubing products. Steel is primarily produced using two methods — Blast Furnace and Electric Arc Furnace. It is regarded as the backbone of the manufacturing industry. The automotive and construction markets have historically been the largest consumers of steel. Notably, the housing and construction sector is the biggest consumer of steel, accounting for roughly half of the world’s total consumption.
What's Shaping the Future of the Steel Producers' Industry?
A Recovery in Steel Prices Bodes Well: U.S. steel prices saw a sharp decline in 2024 due to a slowdown in end-market demand after a strong run in late 2023 that extended into early last year. Benchmark hot-rolled coil (HRC) prices tumbled more than 40% last year to close near the $700 per short ton level from $1,200 per short ton at the beginning of 2024. The downside has been influenced by a combination of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries, and economic uncertainties. The recent steel mill price hikes and the Trump administration's imposition of a 25% tariff on all steel imports into the United States have led to an uptick in HRC prices to above $900 per short ton. The tariffs would tighten supply by restricting imported steel while allowing domestic mills to raise prices. With end-market demand improving, steel prices will likely continue to climb, benefiting U.S. steelmakers with higher profit margins.
Steady Demand in Major Markets: Steel producers are seeing firm demand across major steel end-use markets, including automotive and construction. A slowdown in global automotive production curtailed steel consumption in this key end market in 2024. The automotive market is expected to rebound this year, driven by the accelerating adoption of electric vehicles as governments globally push for carbon neutrality. Improving affordability, strong demand for hybrids and aggressive promotional incentives are expected to drive new vehicle sales. Steelmakers are expected to benefit from higher order bookings from the automotive market. Meanwhile, order activities in the non-residential construction market remain strong, underscoring the inherent strength of this industry. Infrastructure projects in the United States are on the rise, driven by government initiatives to upgrade transportation and utility networks. Favorable trends across these markets bode well.
China Slowdown a Concern: Steel demand in China, the world’s top consumer of the commodity, has softened due to a slowdown in the country’s economy following a protracted property crisis and weak global demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. Notably, real estate accounts for roughly 40% of China's steel consumption. A slowdown in manufacturing activities has led to a contraction in demand for steel in China. The manufacturing sector has taken a beating due to weaker external demand for manufactured goods and a slowdown in infrastructure spending. China has also seen a slowdown in the construction sector. The sluggishness in these key steel-consuming sectors is expected to hurt demand for steel over the short term.
Zacks Industry Rank Indicates Upbeat Prospects
The Zacks Steel Producers industry is part of the broader Zacks Basic Materials Sector. It carries a Zacks Industry Rank #43, which places it in the top 17% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a bright near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Steel Producers industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has lost 45.5% over this period compared with the S&P 500’s rise of 5.8% and the broader sector’s decline of 10.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing steel stocks, the industry is currently trading at 8.04X, below the S&P 500’s 15.56X and the sector’s 11.52X.
Over the past five years, the industry has traded as high as 12.93X, as low as 2.79X and at the median of 8.71X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Steel Producer Stocks in Focus
Nucor: Charlotte, NC-based Nucor makes steel and steel products with operating facilities in the United States, Canada and Mexico. Nucor is expected to gain from the strength in the non-residential construction market. The company also remains focused on achieving greater penetration in the automotive market. Nucor should also benefit from considerable market opportunities from its strategic investments in its most significant growth projects. NUE remains committed to boosting production capacity, which should drive growth and strengthen its position as a low-cost producer. Nucor is maximizing its returns to shareholders by leveraging its strong balance sheet and cash flows.
Nucor carries a Zacks Rank #2 (Buy). Its earnings beat the Zacks Consensus Estimate for earnings in three of the last four quarters. NUE has a trailing four-quarter earnings surprise of roughly 27.2%, on average. The Zacks Consensus Estimate for NUE’s 2025 earnings has moved up 11.7% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: NUE
Steel Dynamics: Based in Indiana, Steel Dynamics is a leading steel producer and metals recycler in the United States. It is seeing strong customer order activity for flat-rolled steel. It is currently executing several projects that should add to its capacity and boost profitability. STLD is ramping up operations at its new state-of-the-art electric arc furnace flat-rolled steel mill in Texas. The value-added flat-rolled steel coating lines, consisting of two paint lines and two galvanizing lines, also enhance the annual value-added flat-rolled steel capacity. The company is ramping up volumes from these lines, which are expected to provide earnings benefits in 2025. It is also progressing with its aluminum flat-rolled products mill and plans to produce commercially viable products before mid-2025.
Steel Dynamics carries a Zacks Rank #2. The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average earnings surprise of roughly 3.6%. The consensus estimate for STLD’s 2025 earnings has moved up 15.7% in the past 60 days.
Price and Consensus: STLD
United States Steel: Pennsylvania-based U.S. Steel, carrying a Zacks Rank #2, produces and sells flat-rolled and tubular steel products. It is focused on operational efficiency and cost management, which is aiding its North American Flat-Rolled segment. U.S. Steel is executing its “Best for All” strategy by expanding the mini mill steelmaking advantage. The Big River investment has reinforced its position in high-margin steel-end markets. The Mini Mill segment stands to benefit from higher shipments from the Big River 2 (BR2) mill. The company has received strong customer feedback on the product quality of BR2 shipments as it steadily progresses toward full operational capacity and generating free cash flow this year. U.S. Steel's strong liquidity position will also allow it to meet its near-term debt obligations.
U.S. Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters and missed once. X has a trailing four-quarter earnings surprise of roughly 20.4%, on average. The Zacks Consensus Estimate for U.S. Steel’s 2025 earnings has moved up 12.7% in the past 60 days.
Price and Consensus: X
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