Steel stocks surged this morning after the Trump administration said over the weekend it will double steel and aluminum tariffs from 25% to 50%.
Shares of Cleveland-Cliffs (CLF +3.47%) have blasted roughly 26% higher as of 10:43 a.m. ET today. Shares of Steel Dynamics (STLD +0.94%) and Nucor (NUE +0.35%) have also jumped roughly 11% and 10.5%, respectively.
Tariffs seem more firm around steel and aluminum
President Donald Trump announced the higher tariffs on steel and aluminum after the market closed Friday during a rally at a U.S. Steel factory near Pittsburgh. The announcement also happened as Trump celebrated the likely union between U.S. Steel and the Japanese steel maker Nippon Steel in a deal that Trump promised would include no layoffs and where the company will remain in U.S. control.
"We're going to bring it from 25% percent to 50% -- the tariffs on steel into the United States of America -- which will even further secure the steel industry in the United States," Trump said at the event. "Nobody's going to get around that."
While tariff rates on other countries have fluctuated since being announced in early April, the Trump administration seems to be more firm about steel and aluminum tariffs, which have been in effect since March 12.
Tariffs are expected to raise the price of U.S.-made steel, which should benefit Cleveland Cliffs, Steel Dynamics, and Nucor. According to Barron's, benchmark steel prices have increased from $725 per metric ton before Trump took office to $875 per metric ton.
As you can see from the chart above, Cleveland-Cliffs has underperformed the group this year. The company attempted to acquire U.S. Steel in 2023 but ultimately got outbid by Nippon, which is promising to invest significantly in U.S. Steel's operations. This could erode Cleveland-Cliffs' position in the market. Furthermore, Cleveland-Cliffs lowered its full-year guidance in the first quarter of the year due to higher costs and lower perceived demand.
According to analysts at Jefferies, Cleveland-Cliffs is more highly leveraged than other steel companies, meaning its stock is affected more by steel prices.
Will the tariffs stick?
That's been an ongoing question since Trump began enacting tariffs on April 2. While it seems likely that tariffs on steel and aluminum are here to stay, it's less clear whether the 50% level is.
The European Union was not happy with the decision, and a spokesperson said the move "undermines" efforts to arrive at a "negotiated solution" on trade. Furthermore, the E.U. is "prepared to impose countermeasures, including in response to the latest U.S. tariff increase."
I do think the administration is going to want to see trade deals at the end of the 90-day tariff pause that began in April. If the steel and aluminum tariffs become an obstacle, I think the administration will likely at least lower the tariff rates back to 25%. I think that if investors want to add some exposure to the steel industry, they should keep it in the less-leveraged companies like Nucor and Steel Dynamics, as opposed to Cleveland-Cliffs, which could take a hit if steel tariffs are eventually lowered.
