Steelmakers may benefit from Trump trade salvos, Wall Street says

U.S. steelmakers should be beneficiaries of President Donald Trump’s new tariffs, but Wall Street warned that there are some risks in the longer term.

On Saturday, Trump slapped 25% tariffs on imports from Mexico and Canada and a 10% levy on those from China. On Monday, the U.S. agreed to pause tariffs on Mexico for one month in return for President Claudia Sheinbaum sending troops to northern border.

Those decisions the stock market’s early slide. The Dow Jones Industrial Average was recently lower by about 200 points after buckling 600 points as the trading day began.

Steel stocks waffled, after seeing some gains in the premarket. Nucor shares were up about 2% and U.S. Steel moved 1% higher in morning trading, while Steel Dynamics was lower.

The levies are expected to make foreign steel more expensive in the United States. Companies hope U.S. production will rise as a result, and give them an opportunity to raise prices.

The industry has been battling cheap foreign imports for years, thanks to illegal dumping into the U.S. market, Nucor CEO Leon Topalian said in an interview with CNBC’s “Mad Money” last Tuesday. Dumping refers to when a foreign country exports products at a lower price than in its home market or below production costs.

“It’s the illegal dumping, the subsidization of steels and the currency manipulation that creates a very unbalanced and unlevel playing field that has hurt the steel industry for decades,” Topalian told Jim Cramer.

Canada is the top steel exporter into the U.S., while Mexico is the third-largest, according to the Census Bureau. The countries were initially targeted in the first Trump administration’s tariffs, but eventually reached a trade deal that included an exemption.

Morgan Stanley sees a direct impact on the pricing power for U.S. steel companies.

“We believe prices are beginning to recover after a challenging 2024, supported by protectionist trade measures,” analyst Carols De Alba wrote in a note Monday. “We project prices to improve further in 2026 as tariff implications flow through the U.S. economy.”

However, those price increases will be tempered by limited dampened demand. The Wall Street investment bank anticipates “modest” steel demand growth of 1.6%.

In addition, De Alba downgraded U.S. Steel, saying he no longer sees meaningful upside to his price target, assuming U.S. Steel remians independent and isn’t acquired. His target of $39 per share implies 6% upside from Friday’s close.

The planned acquisition of U.S. Steel by Japan’s Nippon Steel was blocked by the Biden administration in January. Nucor is now partnering with Cleveland-Cliffs in a potential bid for U.S. Steel, sources recently told CNBC’s David Faber.

Meanwhile, UBS also sees higher steel prices if the tariffs are imposed and kept.

“Trade disruption should drive prices higher in the near term and support U.S. steel equities, but low demand and capacity additions will offset these gains in major products in the medium term in our view,” analyst Andrew Jones wrote in a note Monday.

Bank of America Securities also highlighted future headwinds, despite the benefit the steelmakers will see from more expensive imports.

“Longer term, we see downside risk to the US steel stocks from the potential for materially reduced auto production, around 25% of U.S. steel demand,” analyst Lawson Winder wrote in a note Monday.