Commodity Sector Stocks are a “Steel” After Tariff Blitz

President Trump’s bombshell decision this week, doubling steel import tariffs to 50% is igniting a rally in domestic steel stocks. The policy aims to fortify U.S. producers against foreign rivals, lifting the S&P 500 Metals & Mining Index (INDEXSP: SP500-151040) more than 20% year-to-date, triple the S&P 500’s slim 2% crawl. 

Benchmark steel prices (HRN00, if you want to check it out yourself) have surged to $875 per metric ton from ~$800 pre-tariff, promising fatter margins for U.S. mills. 

But as trade wars heat up, are these commodity stocks a steel spine or for your portfolio, or a classic TACO (Trump always chickens out) trade trap?

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Tariff Tailwinds

The tariff hike, up from 25%, slams major suppliers like Canada, Mexico, Brazil, and South Korea. Only the UK goes untouched, due to a May 2025 trade deal. 

The U.S., the world’s second-largest steel importer after the EU, relies on foreign steel for 30% of its 120 million-ton annual consumption, per the American Iron and Steel Institute. 

Higher tariffs make imported steel way pricier, boosting demand for domestic output. Domestic electric arc mini-mills, which recycle scrap metal, give U.S. producers flexibility to ramp up production, capitalizing on price spikes and (somewhat) helping buffer downstream pricing effects. 

Likewise, pre-planned capital investments in new mills and upgrades, totaling $10 billion across the industry through 2027, signal long-term confidence.

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Downstream Pain (But Upstream Gain)

Tariffs are a double-edged sword, hammering downstream steel clients while enriching upstream manufacturers. Industries like automotive, construction, and appliances, which consume 60% of U.S. steel, face soaring input costs. 

For automakers in particular, steel accounts for 15% of vehicle production costs: a 20% price hike could shave 2–3% off margins, according to a Goldman Sachs analysis. 

General Motors (NYSE: GM) and Ford (NYSE: F), already grappling with 5% tariff-related cost increases thus far, may raise prices or cut output, risking consumer backlash or market share loss. 

Construction firms, hit by surging steel prices, could delay projects, with non-residential starts projected to dip 3% in 2025 according to the same Goldman Sachs report.

Upstream, however, domestic steelmakers are cashing in. Higher prices directly lift revenues, with mini-mill producers gaining most from low-cost operations. At the same time, tariffs shrink foreign competition, potentially pushing U.S. mills’ market share to 80% from 70% in 2024. Vertically integrated operations (controlling ore to finished steel, in other words) locks in margin. 

Some are calling the tariff pop a U.S. steel “renaissance” - but the big picture does have some risks to consider.

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Fiery Risks

Jim Cramer (I know, I know) dubs tariffs a “double-edged sword,” citing steel’s cyclical nature and Federal Reserve pause risks. Just as bad, retaliatory tariffs loom large. The EU’s past 25% duties on U.S. goods could return, crimping exports and creating an oversupply issue, as smelting operations aren’t easy to downshift once they pick up steam. 

Compounding oversupply concerns, downstream demand may crater if auto and construction costs soar, with Goldman Sachs forecasting a 5% steel demand drop if tariffs persist. 

New smelters need 3–5 years to come into production, delaying capacity gains and causing issues on the other side of the demand spectrum. At the firm level, high-debt producers risk implosion if prices cool. 

Still, models forecast 8–10% annualized returns for steel stocks over a decade, beating industrials’ net 6%.

The Main Takeaway

Steel’s cyclical nature can be fickle, but ultimately thrives on policy boosts such as these. With U.S. manufacturing and construction demand up 5% in 2025 and growing as on-shoring plans take hold, tariffs amplify profits for upstream steelmakers. 

Collective dividend yields in the 2–3% range add income, and an average 0.9 beta offers moderate calm amid market swings.

❌ Avoid high-debt players like Cleveland-Cliffs (NYSE: CLF). Retaliation or rate hikes could crush them, and recent momentum doesn’t quite make up for a lacking dividend yield compared to competitors. 

✅ Focus on efficient producers with strong balance sheets and dividends.

✅ Use ETFs to spread risk while capturing tariff upside.

Top Steel Picks to Forge Ahead