Steel earnings season is here, and it's shaping up to be an interesting one. The sector has been on a tear lately—steel equities are up 17% over the past three months, slightly ahead of the State Street SPDR S&P Metals & Mining ETF (XME)'s 15% gain. That's impressive considering demand isn't exactly booming right now.
The rally has been driven mostly by supply dynamics rather than robust end-market strength. Hot rolled coil prices have jumped 17% during this period, and here's the kicker: HRC metal margins have expanded more than 20% relative to pre-tariff levels. Meanwhile, post-tariff mill utilization is running roughly 160 basis points above historical norms, according to JP Morgan analyst Bill Peterson.
So what's happening with demand? It's complicated. Forward demand indicators are sending mixed signals as medium-sized and smaller buyers navigate ongoing trade uncertainty. The bigger picture likely won't become clear until there's resolution on the United States-Mexico-Canada Agreement (USMCA) and the International Emergency Economic Powers Act (IEEPA) tariffs—issues the Supreme Court recently deferred. Those clarifications will probably be needed before larger, steel-intensive projects get the green light.
Despite the uncertainty, Peterson maintains Overweight ratings on Nucor Corporation (NUE), Commercial Metals Company (CMC), and Reliance, Inc. (RS). These remain the firm's top picks heading into earnings season.
What to Expect From Q4 Results
Peterson anticipates that price momentum should continue through at least the first quarter, with JP Morgan forecasting HRC at $955 per ton. But there's a ceiling here—upside is limited by a narrowing import arbitrage, and a seasonal slowdown is likely to hit in summer after restocking activity wraps up.
For the fourth quarter itself, expect weaker earnings driven by seasonally lighter shipments and lagging sheet contracts. These contracts, which represent about 75% of the mini-mill mix, could be down as much as 8% quarter-over-quarter.
Investor conversations suggest Nucor will likely beat expectations, reflecting what appears to have been a conservative mid-quarter guide. On the flip side, Cleveland-Cliffs may report weakness stemming from elevated costs.
Reliance could exceed its fourth-quarter and first-quarter EPS guidance—JP Morgan sees upside of 5% and 7% respectively versus Bloomberg consensus—thanks to stronger pricing and reduced customer pushback. However, there are some operational risks to watch: an unplanned outage at Steel Dynamics's Butler mill and a transformer fire at Sinton could create shipment headwinds for the first quarter.
Commercial Metals's first-quarter results offered a mixed picture. Many large construction projects remain on hold, which isn't surprising given the uncertain economic backdrop. But there was a bright spot: positive momentum in rebar fabrication, an area where Nucor also has exposure.
NUE Price Action: Nucor shares were down 0.65% at $173.86 at the time of publication on Friday. The stock is trading near its 52-week high of $175.94.
