The North American steel sector is grappling with weak pricing and muted demand growth, leaving investors cautious in the absence of clear catalysts.
With Steel Dynamics (NASDAQ:STLD) and Nucor Corporation (NYSE:NUE) set to issue third-quarter guidance next week, and Commercial Metals Company (NYSE:CMC) approaching its fiscal fourth-quarter report in October, JP Morgan highlights persistent pricing pressure and ongoing industry uncertainty in its latest mid-quarter update on the sector.
Hot Rolled Coil (HRC) prices have fallen 6% quarter-to-date, while scrap prices have held steady but not enough to ease margin pressures.
Mills have captured market share from imports, aided by structural improvements in metal spreads compared with pre-pandemic and 2024 averages.
Utilization rates have climbed above 79%, supported by a sharp decline in imports, down 16% month-over-month and 21% year-over-year in August, and a 2 million-ton increase in domestic shipments this year.
Yet real demand remains tepid, and inventories appear adequate, reinforcing a cautious approach from buyers still working down stock.
JP Morgan expects this backdrop of uncertain pricing, range-bound trading, and weak demand to extend through the fourth quarter.
Fall outages are smaller than last year, while rising production adds further headwinds. The path to stronger growth, the firm notes, may depend on multiple rate cuts and greater clarity on trade policy with Mexico and Canada, factors unlikely to emerge in the near term.
Investor sentiment mirrors the muted outlook. Despite a 7% quarter-to-date rise in rebar prices, which helped lift CMC shares 21%, upside looks limited heading into the slower winter period.
JP Morgan continues to favor companies with diversified earnings. The firm has issued Neutral ratings with a price forecast of $150 for Steel Dynamics, $10 for Cleveland-Cliffs (NYSE:CLF), and $54 for Commercial Metals Company. Nucor carries an Overweight rating with a price forecast of $165, while Reliance Steel & Aluminum also holds an Overweight rating with a price forecast of $350.
For the third quarter, the firm models earnings declines of 4% for Nucor and 6% for Steel Dynamics versus Bloomberg consensus, citing weaker pricing and shipment risk.
Nucor's results are expected to remain resilient, with softer Brazilian pig iron tariffs offsetting pressure on plate pricing. Steel Dynamics faces lingering coated inventory and ongoing losses at its aluminum rolling mill (ADI).
While management points to a "step function" profitability improvement in the second half, investors remain wary until evidence materializes.
Despite ongoing price erosion, North American steel stocks have climbed 17% this quarter, outpacing the S&P 500's 6% gain though trailing the metals and mining index's 28%.
Since July 1, steel equities have re-rated 6% higher, seemingly on expectations of rate cuts or a stronger pricing environment, a view at odds with quarter-to-date price declines and the historical pattern in which rate cuts precede non-residential construction spending, roughly half of steel demand, by 18 to 24 months.
Cleveland-Cliffs has led the group with an 18% re-rating, followed by Commercial Metals at 12%, the latter lifted by stronger earnings expectations tied to rebar's recent gains. In contrast, Cleveland-Cliffs' 2025 EBITDA forecasts have been cut by 27%, yet its shares have continued to climb.
Valuations reflect this tension. Nucor and Steel Dynamics trade at an 8.0x EV/EBITDA 2026 premium on tariff support, while Cleveland-Cliffs sits at 6.5x, pressured by debt and limited diversification.
CMC's 6.5x target multiple modestly exceeds its historical average, supported by end-of-capex positioning and new profitability initiatives, though capacity additions and trade risks weigh on sentiment.
Ultimately, JP Morgan sees a subdued outlook for North American steel, with limited catalysts and wide divergence in expectations.
The firm argues that companies with operational flexibility, diversified product lines, and disciplined capital allocation, notably Nucor and Reliance, remain best positioned to withstand market headwinds.
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