Nucor and other US steelmakers on the front line

Published: 2025-06-02 05:02:06 ET NUE

Published on 06/02/2025 at 05:02

By Kevin Smith

The leading US steel producer, which has an annual production of 26 million tons, compared with 16 million tons for its closest rivals US Steel and Cleveland-Cliffs, could be one of the big winners from the tariffs announced by Donald Trump on Friday.

At least that is the gamble that some speculators will undoubtedly try to take. Like those who, a few months earlier, and despite the outcry from presidential candidates, successfully bet on US Steel in the wake of the takeover bid by Nippon Steel. See United States Steel Corporation: An opportunity not to be missed, published at the time in our columns.

Nucor's share price is trading at a four-year low. In truth, a slowdown was expected after an exceptional—even unreasonable—rally during the pandemic. The rally had broken a painful period of stock market stagnation that had lasted since the subprime crisis and quadrupled the value of the North Carolina-based group.

Nucor took advantage of the upturn to resume its external growth strategy. Added to this was the major stress on supply chains, which drove up commodity prices and pushed them to new records. The economic situation was abnormal in every respect: a steel manufacturer was posting margins comparable to those of Microsoft.

The group had pushed hard on share buybacks, which at the time had left Zonebourse analysts baffled; it was difficult to see how these transactions would prove accretive in the long term. Research and experience show that share buybacks are only beneficial to shareholders if the shares are genuinely undervalued.

In any case, the winds are blowing in the right direction for steelmakers once again. In addition to the increase in tariffs on steel and aluminum announced on Friday by Donald Trump, the US Department of Commerce has clearly identified ten countries—including, of course, China as the leader—as repeat offenders of aggressive dumping. Is this the TACO effect ("Trump Always Chickens Out") or a real paradigm shift?

Along with Aperam, Nucor is the only Western steel producer that is consistently profitable. Its current valuation is not at historic lows, but it is trading below its multiples: 7x EBITDA versus an average of 9x; 1.3x equity versus an average of 2x; and 20x earnings versus an average of 25x.

Steel prices in the United States, while down significantly from the excesses seen during the pandemic, remain above the average for the 2010-2020 cycle. If the paradigm shift is real, Nucor could therefore benefit very directly, both on the stock market and in its operations.

However, it is to be hoped that the cure will not be worse than the disease—in other words, that the US president's policies will not cause a recession in which steelmakers would be the first victims.

Kevin Smith