Core Viewpoint - The recent proclamation by U.S. President Donald Trump provides a two-year reprieve for coke oven facilities from stringent EPA rules, which is expected to stimulate growth in the U.S. steel supply chain and improve earnings for steel producers and coke-exposed miners [1][2]. Industry Impact - The easing of compliance pressure on metallurgical coke producers and related iron ore assets is anticipated to act as a significant growth catalyst for the U.S. steel supply chain [2]. - The proclamation is likely to reduce regulatory-driven shutdown risks for U.S. integrated steelmakers and metallurgical coke producers, providing a clearer investment landscape for ETFs focused on these sectors [3]. Trade and Tariff Context - The U.S. remains heavily reliant on steel imports, with nearly 25% of its steel supply coming from abroad, primarily from Mexico, Canada, and key allies in Asia and Europe [4]. - A 25% tariff on steel imports was previously imposed to bolster domestic production, but this has led to trade conflicts, particularly with China, resulting in a significant reduction in Chinese steel exports to the U.S. [5]. - Recent data indicates a 16.8% month-over-month decline in U.S. steel imports as of August 2025, attributed to the doubling of the Section 232 tariff from 25% to 50% [6]. Domestic Production and Costs - Trade tensions and tariffs have increased input costs for U.S. manufacturers, with domestic steel prices nearly double the global benchmark, putting pressure on downstream margins [7]. - The latest proclamation suggests that the U.S. administration is prioritizing industrial output stability, treating coke ovens and related facilities as national security infrastructure [8]. ETF Opportunities - The current environment is expected to enhance pricing power and volume predictability for companies in the steel and metallurgical coal sectors, benefiting ETFs that include U.S. steel producers and coke-linked mining companies [10]. - Notable ETFs include: - **State Street SPDR S&P Metals & Mining ETF (XME)**: AUM of $2.56 billion, up 38.6% year to date, with top holdings including Nucor Corp and Steel Dynamics [11][12][13]. - **VanEck Steel ETF (SLX)**: Net assets of $125.6 million, up 38.4% year to date, with major holdings in iron ore suppliers [14]. - **iShares U.S. Basic Materials ETF (IYM)**: Net assets of $125.6 million, up 15.8% year to date, featuring significant investments in Nucor and Steel Dynamics [15].

Summary of Steel Industry Conference Call Industry Overview - **Industry**: Steel - **Region**: North America - **Current Market View**: Prices are expected to remain relatively muted over the next six months due to soft demand, despite an anticipated fall in imports [1][2] Key Points Demand Dynamics - **Soft Demand**: Steel demand has been subdued since April 2024, with expectations of a muted six months before any significant improvement [3][4] - **Bifurcated Market**: Industrial sectors like heavy equipment, energy, and infrastructure are performing relatively well, while consumer-oriented segments are sluggish [3][4] - **Strong Segments**: Oilfield and OCTG steel volumes are strong, and solar and wind markets are benefiting from residual IRA-driven spending, although long-term visibility is limited [3][4] - **Weak Segments**: Truck and trailer demand has collapsed post-COVID, with recovery not expected until 2029. Consumer goods like garden equipment remain pressured by high interest rates and reduced discretionary spending [3][4] Import and Tariff Impact - **Declining Imports**: Import flows are expected to decline sharply due to a 50% tariff, which eliminates nearly all profit margins for foreign suppliers [4][7] - **Economic Incentive**: An Asian producer selling at $500/t would incur $250/t in duties and $35/t in freight, leading to a landed cost of approximately $785/t, making domestic prices more attractive [4][7] - **Potential "Steel Island"**: A self-contained steel market could emerge if Mexico and Canada adopt similar tariffs without exceptions [4][7] Price Stability - **Current Price Levels**: Steel prices are expected to remain stable around $800/t, with transaction levels around $750/t [7][8] - **Limited Catalysts**: There are limited near-term catalysts to break current price levels, with healthy inventory levels and excess capacity limiting upside [7][8] - **Potential Upside**: Accelerated interest rate cuts or reduced trade escalation rhetoric with China could provide a bullish case [7][8] - **Downside Risks**: An unexpected relaxing of tariffs on Mexico and Canada could trigger downside risks, with base prices potentially around $600/t without the current tariffs [7][8] Company Insights - **Nucor**: Continues to hold its weekly listed HRC price stable at $875/t for eight consecutive weeks, focusing on vertical integration [8] - **Nippon's Strategy**: Ownership of U.S. Steel has led to a strategic shift towards integrated customer solutions rather than individual product sales [8] - **Cleveland-Cliffs**: Has been quicker to offer discounts to secure sales volumes and benefit from fixed-cost dilution [8] Additional Considerations - **Cautious Outlook**: The overall tone remains cautious with near-term stagnation expected until mid-2Q26 when inventories normalize and policy clarity improves [3][4] - **Bipartisan Support for Tariffs**: U.S. tariff policy on steel continues to receive bipartisan support, which is crucial for the industry's stability in the current demand environment [4][7]

Investment Rating - The industry investment rating is In-Line [5]. Core Insights - The United States and Mexico are negotiating a trade deal to remove the 50% tariff on steel imports, allowing Mexico to export tariff-free steel to the US up to a certain volume [1]. - The US was a net exporter of steel to Mexico in 2024, exporting approximately 4.78 million tons while importing around 3.51 million tons [4]. - The potential shift to a tariff-rate quota (TRQ) system for Mexico could negatively impact long steel producers, as Mexico is a net exporter of rebar and wire drawn products [3]. Summary by Sections Section 232 Overview - Section 232 was enacted in 2018, imposing a 25% tariff on all steel imports and 10% on aluminum, with exemptions granted to Canada, Mexico, and Australia [2]. - In early June 2025, President Trump reinstated a 50% tariff on steel and aluminum imports, removing all prior exemptions [2]. Trade Dynamics - In 2024, the US imported approximately 154,000 tons of rebar from Mexico but exported only about 4,000 tons, indicating a significant trade imbalance in this category [4]. - The US imported around 233,000 tons of wire rod from Mexico while exporting just 45,000 tons, further highlighting the trade dynamics [4]. Company Ratings - Cleveland-Cliffs Inc (CLF.N): Equal-weight rating as of February 15, 2024, with a price of US$8.02 [56]. - Commercial Metals Company (CMC.N): Equal-weight rating as of December 19, 2024, with a price of US$50.67 [56]. - Nucor Corp (NUE.N): Overweight rating as of August 14, 2024, with a price of US$124.68 [56]. - Steel Dynamics Inc (STLD.O): Overweight rating as of March 7, 2025, with a price of US$133.81 [56]. - US Steel (X.N): Equal-weight rating as of February 3, 2025, with a price of US$53.89 [56].

Core Insights - The implementation of U.S. tariffs on steel and aluminum has created significant market volatility, particularly affecting major metal producers Nucor Corp and Alcoa Corp [1][2] Company Performance - Nucor Corp's stock is currently down 0.6% at $129.12, but it has seen a year-to-date increase of 10.6%, with its 50-day moving average providing support [2] - Alcoa Corp's stock is up 2.7% at $32.82, although it has struggled this year, down 13% year-to-date, and recently hit its lowest level since early September before today's increase [2]