What happened

Shares of Nucor (NUE -0.15%) fell 15.9% in May, according to data provided by S&P Global Market Intelligence, as the steelmaker was hit by a double whammy from tariffs. Not only is the U.S. lifting tariffs on steel imports, but tariffs on other goods are also threatening to slow the global economy and eat into steel demand.

So what

Nucor is a best-of-breed steelmaker, and the company in late April reported solid first-quarter results. But revenue, net income, and earnings per share all fell year over year, due to decreasing steel prices and stubbornly high input costs. The company at the time remained optimistic, with CFO James Frias saying on a post-earnings call with investors, "We continue to be encouraged by the overall strength of our domestic end use markets."

Rolled steel manufacture

Image source: Getty Images.

Investors were not so optimistic, and the sell-off intensified in late May after Nucor was the subject of a series of downgrades from Bank of America/Merrill Lynch and Deutsche Bank. The analysts are concerned with lower near-term steel price forecasts, and the potential for those low prices to continue into 2022, given an expected glut in steel.

Analysts are worried about a steel glut in part because the U.S.'s ongoing trade war with China threatens to slow the global economy and cut into demand. Nucor and other steelmakers were further pressured mid-month after the U.S. removed steel and aluminum tariffs on Canada and Mexico.

It also didn't help that a May 22 meeting between the White House and congressional leadership that was supposed to be focused on infrastructure spending ended in partisan bickering, diminishing hopes that increased government spending could cushion a potential drop in commercial demand.

Now what

Nucor is a steelmaker and is subject to the same cyclical pressures as the rest of the industry, but the company's well-earned reputation as a low-cost operator in the past has served it well in downturns. The company on its conference call said it is well positioned to take market share, with Frias adding that although Nucor expects automotive steel demand to decline in 2019, it expects to grow its shipments to these customers.

Nucor shares tend to trade in a range based on the overall health of the economy and steel demand, but the company as a best-in-class operator pays a dividend of more than 3% to help keep investors through a downturn. It appears to be the point in the sector where income-focused investors might want to consider buying into Nucor.