The basic materials sector has had a strong year in 2026. That performance is confirmed by the iShares U.S. Basic Materials ETF (NYSEARCA: IYM). It’s up more than 17% in 2026 and 21% in the last 12 months. Both numbers are higher than the S&P 500 average of around 13% (with dividends reinvested).
This broad sector includes steelmakers. Many individual names, such as Nucor (NYSE: NUE) and Steel Dynamics (NASDAQ: STLD), have outpaced the IYM ETF, and analysts believe both stocks have further upside ahead.
But in the short term, both NUE and STLD are pulling back. The driving force was guidance. Nucor guided for Q3 earnings between $5.55–$5.65 per share, up from $5.04 in the second quarter. However, that’s below the $6.17 consensus of analysts. Steel Dynamics guided to earnings per share (EPS) between $5.34–$5.38. That’s up from $3.69, but also below analyst estimates.
However, the sell-off seems to be driven more by sentiment than by fundamentals. The steel industry has some strong tailwinds, which suggests these stocks are simply taking a breather.
Hot-Rolled Coil Pricing Has Reset Higher
U.S. hot-rolled coil trades near $1,200 per ton, up from about $800 a year ago. Fall mill outages are set to remove more than 1 million tons of supply between September and December, and lead times run 8 to 12 weeks.
Mills are also writing 2027 contracts at higher levels, with CRU pointing to $1,100–$1,175 per ton versus about $800 for 2026. Futures are set to slope lower into late 2027. Even so, the back end of the curve sits far above last year's levels.
Shipments and Backlogs Support the Price Story
Volumes confirm the pricing. Steel Dynamics guided to record shipments, with a fabrication backlog nearly 50% above last year that extends through the first quarter of 2027. That demand spans commercial construction, data centers, manufacturing, and healthcare.
Nucor also reported higher backlogs at the end of the second quarter. Industry-wide, raw steel capacity utilization hit 82.3% in the week ending Sept. 12, and year-to-date output is up 5.5%. That diversified demand matters amid the escalating debate over data center growth. Data centers are one driver, but not the only one.
Tariffs have also reshaped supply. By Nucor's account, the share of imports in U.S. steel consumption fell from 25% in early 2025 to 14% by November.
Wide Spreads Favor Electric Arc Producers
Margins are where the tailwind shows most clearly. The spread between hot-rolled coil and Chicago No. 1 busheling has widened to roughly $946 per ton, near the 2021–22 peak. Scrap has gone sideways, with Chicago prime grades unchanged for eight straight months.
Steel Dynamics credited its jump to wider metal margins, higher realized prices and lower scrap costs. Blast furnace producers face pricier inputs, including coking coal, recently near $229 per ton.
Nucor's guidance is similar but needs more context. Second-quarter results included a $130 million raw materials refund and a $61 million Helion valuation gain. Neither is expected to repeat, so the sequential comparison is tougher than it looks. Its steel products segment also saw margin compression as higher steel input costs outpaced selling prices. Still, Nucor expects higher steel mill earnings on stronger average selling prices and stable volumes.
Management is also buying. Nucor repurchased about 2.03 million shares in the quarter at an average of $247.04. Steel Dynamics repurchased $261 million.
Guidance Missed Estimates, But the Direction Is Higher
The sell-off appears to be a case of profit-taking, with STLD and NUE being up by approximately 37% and 50%, respectively, in 2026. The thinking could be that if regulators are successful in slowing the pace of the data center buildout, it would saw off one leg of the stool that is contributing to higher steel prices.
Other risks could also soften prices. Imports have climbed from historic lows this year, and the fall mill outages will eventually end. Labor talks at blast furnace rivals are unresolved, with Cleveland-Cliffs (NYSE: CLF) and the USW extending their contract through Oct. 1. Steel Dynamics reports on Oct. 19, and Nucor follows on Oct. 26. Those reports will show whether guidance was conservative or whether the sell-off has merit.
However, much like oil prices, steel prices are likely to have a higher floor that should extend into 2027. That outlook is supported by analysts. Nucor has a consensus price target of $274.79, which implies an upside of around 12%. Analysts at JPMorgan Chase set an even higher price target of $308 for NUE, up from $294 on Sept. 9.
Steel Dynamics has a consensus price target of $258.55, which implies an upside of around 11%. STLD also has higher price targets, including a $300 target from Goldman Sachs.
The article "Nucor and Steel Dynamics Just Pulled Back—The Steel Story Still Looks Strong" first appeared on MarketBeat.
