Global Steel: Trade measures are key to margin recovery

Overview

This report is UBS's global steel industry research, with the core theme being the impact of trade measures on steel prices, regional supply-demand and margin recovery. The report covers macro and steel supply-demand indicators across China, Europe, the U.S., South America and India, and provides ratings, price targets and valuation comparisons for major steel companies. The overall view is that trade protection can help improve the mid-cycle price floor and margins, but the industry remains highly cyclical, and differences in valuation, cash flow, leverage and business structure across companies determine investment attractiveness.

Core views

UBS believes the key to steel margin recovery lies in whether trade measures can curb import pressure and support local steel prices. In Europe, lower import quotas, higher tariffs and CBAM should support capacity utilization and margins for European steelmakers; in the U.S., Section 232, downstream product tariffs and the CORE trade case raise import parity and support the mid-cycle price floor. However, the report also emphasizes that different companies have different sensitivity to these tailwinds, and some stocks have already priced in the policy benefits. SSAB and CMC have clearer structural improvement stories; ArcelorMittal, Salzgitter and Nucor offer a more balanced risk-reward profile; Erdemir faces constrained export markets, negative cash flow and high leverage pressure.

Analysis framework

The report combines macro demand indicators, regional steel supply-demand models, raw material spreads, inventories, steel price curves, import pressure, trade policy, company earnings forecasts, EV/EBITDA valuation, free cash flow yield, share price performance and crowding indicators for a top-down and bottom-up integrated analysis.

Methodology notes

• Valuation methodsEV/EBITDA, SOTP and DCF

  Multi-method valuation

  The report states that its steel coverage uses valuation methods such as SOTP, multiples and DCF, and compares 2026E and 2027E EV/EBITDA, dividend yield and free cash flow yield.

• Industry supply and demandRegional supply-demand models and steel price assumptions

  Price floor and margin recovery

  The report uses EU+UK, South America, China, India and U.S. supply-demand models, together with UBS steel price assumptions, to assess the impact of trade measures, capacity additions and demand changes on steel prices and margins.

• Policy analysisTrade protection and CBAM analysis

  Support for local steel prices from import restrictions

  The report focuses on analyzing the impact of EU import quota cuts, tariff increases, CBAM, and U.S. Section 232 and the CORE trade case on steel import parity and local prices.

• Quantitative metricsUBS Crowding Factor

  Trading crowding

  UBS's crowding factor uses prime brokerage data, stock lending data, 13F filings and internal data to cover long and short positioning as well as fund types, in order to observe whether market participants are concentrated in similar positions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SSAB

  A European steel company and UBS's preferred steel exposure for 2026

  Strengths

  Benefits from EU trade measures, a bottoming in U.S. plate prices, defense demand, the green steel transition and efficiency gains from the Luleå EAF conversion.

  Weaknesses

  Some businesses remain exposed to steel price cycles and European demand, while the green transition still requires capex and operating validation.

  Comparison

  Compared with some European peers, UBS believes SSAB is better positioned to benefit from decarbonization trends and electricity cost advantages.

  Risks

  European demand weaker than expected, trade measures not implemented as expected, and green steel project costs exceeding expectations.

• Commercial Metals Company

  A U.S. rebar and building solutions company, rated Buy

  Strengths

  Resilient U.S. rebar prices, with CMC and Nucor together controlling about 75% of the market, and the building solutions business improves profit quality and cash conversion.

  Weaknesses

  Still exposed to the U.S. construction cycle, import pressure and new capacity additions.

  Comparison

  Compared with peers, CMC's roughly 40% year-to-date underperformance provides a more attractive entry point.

  Risks

  Rebar prices below expectations, weaker trade protection, acquisition integration issues and a slowdown in construction demand.

• Nucor Corp

  The leading U.S. steel producer, rated Neutral

  Strengths

  Section 232, downstream product tariffs, infrastructure and capacity projects support the mid-cycle price and volume environment.

  Weaknesses

  Spot prices are high, and low-cost imports may re-enter the market, limiting near-term upside.

  Comparison

  Nucor's fundamental improvement is clear, but valuation and year-to-date performance have already reflected much of the good news.

  Risks

  Import parity suppressing prices, capacity ramp-up below expectations, and a slowdown in U.S. demand.

• ArcelorMittal

  A global steel company, rated Neutral

  Strengths

  European safeguards and measures in Brazil should improve earnings, and Calvert integration is a positive factor.

  Weaknesses

  The Canadian business is hit by Section 232 tariffs, and new capacity in India is weighing on prices.

  Comparison

  Versus historical valuation, 2027E EV/EBITDA is 5.8x and 68% above the five-year average, so UBS sees limited room for re-rating.

  Risks

  Policy benefits falling short of expectations, regional profit improvement being offset by other markets, and insufficient free cash flow.

• Salzgitter

  A European steel company, rated Neutral

  Strengths

  One of the beneficiaries of tighter EU safeguards and CBAM.

  Weaknesses

  Lacks near-term catalysts, has no plans to sell the KHS and Aurubis stakes, and deleveraging is slow.

  Comparison

  The share price is close to target price, and valuation already reflects expected margin improvement.

  Risks

  Trade policy delivery falling short, delayed value realization from the asset portfolio, and weak European demand.

• Erdemir

  A Turkish steel company, rated Sell

  Strengths

  Could benefit from a gradual price recovery and operational improvements.

  Weaknesses

  Facing significant export pressure, with EU safeguards and CBAM limiting key export markets; valuation is unattractive versus history and European peers, and free cash flow is expected to be negative from 2026-2028.

  Comparison

  Versus the long-term average of 5.5x EV/EBITDA, 2026E and 2027E valuations are about 12x and 9x, which UBS sees as unsupported.

  Risks

  Weak domestic demand in Turkey, constrained export markets, EAF capex pressure, and net debt/EBITDA staying elevated.

Key data

• Report date2026-05-18The file name and metadata both show 20260518.
• SSAB rating and target priceBuy, PT SEK95/shareUBS calls it its preferred steel exposure for 2026.
• CMC rating and target priceBuy, PT US$89/shareThe report argues that resilient U.S. rebar prices and business mix improvement support re-rating.
• ArcelorMittal rating and target priceNeutral, PT €45/shareThe outlook for Europe and Brazil is improving, but UBS believes much of the upside is already priced in.
• Erdemir rating and target priceSell, PT TRY22.8/shareExport pressure, unattractive valuation, negative cash flow and high leverage.
• Salzgitter rating and target priceNeutral, PT €56/shareBenefiting from EU trade measures and CBAM, but lacking near-term catalysts and trading close to target price.
• Nucor rating and target priceNeutral, PT US$224/shareU.S. trade protection supports the mid-cycle price floor, but near-term upside is limited.
• Commercial Metals Company potential upside+26%The valuation table shows a current price of 70.7 and a target price of 89.
• Erdemir potential upside-42%The valuation table shows a current price of 39.6 and a target price of 22.8.
• U.S. mid-cycle price floorAt least US$850/stThe report says Section 232 and the CORE trade case raise the mid-cycle price floor; 2026 is US$975/st, 2027 is US$880/st, and 2028 is US$850/st.
• SSAB defense exposureProtection accounts for about 5-6% of Special Steels revenue and about 1.5% of group revenueUBS estimates that armored plate products contribute more than 5% of group EBITDA.
• Nucor EBITDA growthAbout 50% growth by 2028EDriven by prices, volumes and new growth projects coming online.

Impact & implications

For investors, the steel sector is not simply a cyclical rebound trade, but a differentiated opportunity determined by trade protection, regional supply-demand, import parity, capacity discipline and company asset structure. Trade measures raise the local steel price floor, benefiting U.S. and European domestic producers, but if the stock price has already priced in the upside, the risk-reward may become balanced. More attractive are companies with a combination of policy tailwinds, cost advantages, improving cash flow or upgraded business mix, such as SSAB and CMC.

Risks

• Steel price volatility and the highly cyclical nature of the industry may cause earnings forecasts and valuations to be inaccurate.
• If global excess capacity returns earlier than expected, steel prices and margins could be pressured.
• Trade restrictions, tariffs, import quotas and CBAM policies carry implementation and durability uncertainty.
• Uneven demand recovery in China, Europe and the U.S., and weak real estate, manufacturing and construction demand, will weigh on steel consumption.
• Capacity ramp-ups may weaken regional price discipline, especially in markets such as the U.S. and India.
• Changes in raw material prices, energy costs and carbon costs will affect steelmakers' margins.
• High leverage and ongoing capex may constrain shareholder returns and valuation recovery for some companies.

What to watch

• The final implementation pace of the EU's import quota cuts and proposed 50% tariff.
• The actual impact of U.S. Section 232, the CORE trade case and the 25% tariff on downstream products on import parity.
• Whether U.S. hot-rolled coil and rebar prices can stay above UBS's mid-cycle price floor.
• Whether European manufacturing PMI, German Ifo, construction confidence and actual steel demand continue to improve.
• The impact of China property new starts, sales, completions, inventory months and infrastructure investment on commodity demand.
• SSAB's progress on defense demand, green steel and the Luleå EAF conversion.
• The margin, cash conversion and free cash flow yield delivery of CMC's building solutions business.
• Nucor's growth project ramp-up, tariff benefits in downstream products and the risk of import re-entry.