Investing in Steel Stocks

The world economy is built on steel. Globally, an estimated 1.9 billion tons of steel are used annually for buildings, bridges, automobiles, and heavy machinery. Specialty metals have replaced steel in some limited cases, but the long-term demand for steel remains insatiable.

A handful of companies stand out as leaders in the steel industry. The best steel companies have more modern production capabilities and excel at controlling their costs to compete globally.

Nucor uses electric arc scrap furnaces, which are a lot more efficient than the blast furnaces that have traditionally dominated the industry. The electric furnaces are smaller, less costly to operate, and can more easily be ramped up or slowed down based on demand, which has allowed the company's results to hold up better when steel demand falls.

However, the incumbents haven't stood still, and much of the industry is racing to modernize and better compete with the likes of Nucor. But Nucor has proven itself to be one of the best capital allocators in the business, investing and acquiring when demand is low and valuations are reasonable. It also recently achieved Dividend King status (at least 50 consecutive years of annual dividend increases).

Nucor continues to adapt with a series of recent deals to build its finished products business, selling steel poles and other goods.

2. Steel Dynamics

Steel Dynamics was founded by a Nucor veteran and is trying to follow a similar game plan. The company focuses on electric arc mills and maintains a similarly conservative balance sheet. Steel Dynamics lacks Nucor's track record, which (depending on an investor's point of view) could be a strength or a weakness.

There is arguably a bit more risk buying into Steel Dynamics, given that there isn't the same history of results to fall back on. But with a market capitalization barely half that of Nucor, Steel Dynamics could offer a better chance to get in on the ground floor of a major growth story.

3. Cleveland-Cliffs

You can't have the steel scraps that go into electric arc furnaces without some blast furnaces to make the original steel, so companies such as Nucor and Steel Dynamics will never fully dominate the global market. Traditional steelmakers have been hindered by foreign competition from low-cost producers, especially when selling outside the U.S.

The businesses have restructured and streamlined, however, and they're now safer investments than they were a few decades ago. Cleveland-Cliffs is one of the more vertically integrated companies in steel.

Founded in the 19th century to mine iron ore deposits in the Great Lakes region, it expanded over time into steelmaking and stamping finished products. The company made a bold move in 2020 when it acquired the U.S. steelmaking operations of ArcelorMittal, in part to ensure there was ample demand for its ore, but also to give investors broad exposure to the many parts of the steel business.

4. ArcelorMittal

ArcelorMittal is an investment in global growth. The company is a steel powerhouse, forged via the 2006 merger between Europe's Arcelor and India's Mittal Steel. The company produces a wide range of steel products from facilities in Europe, North and South America, Asia, and Africa and operates iron ore mining projects in seven countries.

The core U.S. production business was sold to Cleveland-Cliffs. However, ArcelorMittal remains the primary steel source for much of the developed world and for emerging economies where steel demand is expected to be highest in the years to come.

Although not as nimble as Nucor or Steel Dynamics -- and more likely to be caught up in cyclical trends -- ArcelorMittal benefits from geographic diversity and a wide range of end markets for its products. Of course, there is risk that comes with global reach. In the early days of the Ukraine war, the company was forced to temporarily suspend production operations in the country.

5. Nippon Steel

Nippon Steel is Japan's largest steelmaker, and it got a big boost in the U.S., thanks to its 2025 acquisition of U.S. Steel. That's the company that can trace its roots back to 1901, when banker J.P. Morgan merged Andrew Carnegie's steel company with other businesses at the height of the industrial revolution.

The paradox for investors over the past century has been that steel is an essential part of the industrialized world, yet the stocks, due to the cyclical nature of the business and the massive production costs, have been underwhelming investments. The risks remain, but today's steelmakers are less tied to economic swings in one region and have found ways to take some of the costs out of the business.

The best now generate profits regardless of economic conditions. And with first-world infrastructure in desperate need of renewal and emerging economies in growth mode, demand isn't going away. For investors comfortable with some cyclicality and seeking stocks to form the foundation of a long-term portfolio, adding some high-quality steel might be a good move.