Nucor and Cleveland-Cliffs both got buy ratings from new Goldman Sachs analyst coverage on Monday, while the Steel Manufacturers Association called on President-elect Donald Trump to bolster domestic output with stronger tariff protections — including a 25% tariff on imports from Mexico.
NUE and CLF stock both rose in early Monday stock market action, as did U.S. Steel, which has been embroiled in a contentious acquisition bid by Japan's Nippon Steel. Steel Dynamics, which has outperformed its peers, was little changed after getting a neutral rating from Goldman.
Steel Stock Catalysts
Goldman's case for steel stocks is that pessimism around global oversupply and soft steel pricing is shortsighted. The firm sees potential for cyclical and structural factors to drive steel-stock earnings, noting that steel inventories are near a recent low point.
Goldman's case sounds much like what Cleveland-Cliffs CEO Lourenco Goncalves said in a Nov. 5 earnings call: "There's a lot of potential catalysts that are brewing in the market that could be a benefit here in the short term."
Goncalves listed falling interest rates, more onshoring of manufacturing, partly due to the Chips and Inflation Reduction Acts, and a potential increase in trade protection. "I anticipate a lot more actions in terms of protecting the domestic market against the ones that act in concerted efforts to destroy it," he said.
Steel Industry Asks Trump For Tariffs
The Steel Manufacturers Association, whose members include Nucor and Steel Dynamics, called on Trump to reimpose 25% tariffs "on surging imports from Mexico" and to "closely monitor imports from Canada, reimposing tariffs if necessary."
Trump posted last week that he intended to slap 25% tariffs on all imports from both countries upon taking office. However, he tied the threat to the cross-border flow of migrants and drugs and subsequently touted productive talks with leaders of both nations.
Citi analysts said in a Nov. 26 report that 25% tariffs on both countries would raise steel prices by $100 to $150 per ton.
In his first term, Trump imposed 25% tariffs on steel imports from both Canada and Mexico, withdrawing them in May 2019 after a year, ahead of the 2020 signing of Nafta's successor, the U.S.-Mexico-Canada Agreement.
Cleveland-Cliffs' Lourenco, after the company's acquisition of leading Canadian steel producer Stelco, said that "not all imports are created equal."
"A country like Canada, for example, follows the rules," which he said was "a large part of the rationale" behind the acquisition.
The Steel Manufacturers Association also called for tightening protections on imports from the European Union, U.K., Japan and South Korea, saying current quota arrangements aren't doing the job. Further, the group called for 60% tariffs on Chinese imports, up from 25%.
NUE, CLF
Nucor stock rose 1.4% but remains deep in an eight-month consolidation, down 23% from its 52-week high. CLF jumped 4.3%, but is down 43.5% from its 52-week peak.
Steel Dynamics dipped 0.3%. However, shares are near the top of a buy zone, having pulled back after surging 14% on Nov. 6, on the heels of Trump's victory.
U.S. Steel saw a more muted 8.3% gain on Election Day. Shares edged up 0.8% on Monday.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
