What happened

Shares of United States Steel (X -0.90%) jumped 12.7% in the month of May, according to data provided by S&P Global Market Intelligence. Strong numbers from the steel manufacturer, a favorable macro environment, and a multitude of analyst upgrades fueled the rally in U.S. Steel stock and continues to drive it higher this month.

So what

U.S. Steel shares kicked off May on a strong note thanks to encouraging first-quarter numbers released on April 29. The industrial company's sales rose 33% to $3.7 billion and it earned a net profit of $91 million versus a loss of $391 million in the year-ago quarter. During its earnings conference call, management expressed optimism about the steel market thanks to robust demand, rising steel prices, and a potential infrastructure bill under President Joe Biden that should further fuel demand.

A person cutting steel pipes in a factory.

Image source: Getty Images.

On May 4, Credit Suisse echoed U.S. Steel's sentiments when it bumped its price target on the stock substantially to $35, representing 42% upside from the stock's closing price on May 3. Credit Suisse believes the steel sector is in a "super cycle." A week later, Morgan Stanley upped its price target on U.S. Steel stock to $32, citing strong steel prices driven by low steel imports and inventories, among other things.

Fears of Biden rolling back steel tariffs as the U.S. and Europe began negotiations in May could have brought the rally in steel stocks to a grinding halt if not for rising steel prices. Steel tariffs imposed by former President Donald Trump essentially helped the U.S. steel industry ride out the COVID-19 pandemic, which is why steel groups in the U.S. urged Biden to retain tariffs last month.

Meanwhile, the price of hot-rolled coil (HRC), also the most widely used steel product and therefore a barometer for the steel industry, is hitting record highs. In the first quarter, HRC accounted for 60% of U.S. Steel's total shipments.

Now what

Unexpected recovery in steel markets has triggered strong investor interest in steel stocks, and there appears to be no stopping the enthusiasm: On June 4, UBS doubled its price target on U.S. Steel shares to $30. The stock is up 5.7% so far in June as of the time of this writing and has rallied nearly 150% in the past year.

Keep an eye on U.S. Steel's balance sheet, as it added debt worth nearly $2 billion when it acquired electric-arc furnace mill Big River earlier this year, pushing its total debt above $5 billion. The company expects to repay at least $1.8 billion debt in 2021. Its financial fortitude and a potential infrastructure bill could largely decide how far U.S. Steel stock can go.