MW Steel stocks among rare gainers after tariffs, but retaliation could take a bite

By Tomi Kilgore

The benefit of tariffs to the U.S. steel industry, which is actually a net exporter to Mexico, could be reduced by tit-for-tat retaliation

One sector is actually rallying Monday morning, bucking the broader stock market's apparent disdain for the tariffs announced by President Trump on Mexico and Canada.

The tariffs, and the prospects for higher inflation as a result, should give a boost to U.S.-based steel companies, KeyBanc analyst Philip Gibbs said. But there's also a potential caveat, given Mexico and Canada's response.

Read: Trump launches trade war on Canada, Mexico and China, provoking retaliation.

Shares of North Carolina-based Nucor Corp. $(NUE)$ climbed 2.4%, and were the S&P 500 index's SPX third-best premarket performers. The fourth-biggest gainer was Indiana-based Steel Dynamics Inc.'s stock (STLD), which also rose 2.4% ahead of the open.

Elsewhere, Pennsylvania-based U.S. Steel Corp. shares $(X)$ tacked on 1% in the premarket, while Ohio-based Cleveland-Cliffs Inc.'s stock $(CLF)$ reversed earlier gains to fall 2.3%.

KeyBanc's Gibbs said the "gut response" to tariffs from steel buyers could be a bit panicked, as prices of scrap metal start to rise.

"Steel buyers will probably place some immediate orders despite no real change in real demand as a hedge against future [near-term] inflation," Gibbs wrote in a note to clients.

"U.S. steel mills will use the tariffs as leverage vs. buyers to garner higher pricing," Gibbs added.

Futures prices for hot-rolled coil steel (HRN00) rose 1.8% in recent trading toward a five-month high. Through Friday, prices had already run up 12.8% over the previous two weeks.

And Gibbs said he expects steel prices to rise over the next several months.

He noted, however, that the U.S. steel industry is actually a net exporter to Mexico, and only a modest net importer from Canada, while Mexico and Canada represent most of the total steel exports.

So while U.S. steel makers could win some sales away from Mexico and Canada on the back of Trump's tariffs, that could come "at the potential detriment of export orders upon tit-for-tat retaliation," Gibbs wrote.

-Tomi Kilgore

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February 03, 2025 08:12 ET (13:12 GMT)

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