Steel Production

# Executive Summary * The U.S. steel industry's profitability is being reshaped by aggressive trade protectionism, with recently expanded 50% tariffs creating a significant protective barrier against global overcapacity. * Persistent global oversupply, particularly from China, remains the primary structural threat, depressing prices and necessitating ongoing trade enforcement. * Robust demand from non-residential construction, infrastructure, and a rebounding automotive sector is driving strong domestic volumes, creating a favorable environment for producers shielded by tariffs. * A fundamental technological shift towards lower-carbon Electric Arc Furnace (EAF) production is creating a clear divergence between efficient, profitable EAF leaders and challenged legacy producers. * Decarbonization is the industry's primary long-term challenge, requiring massive capital investment that is proving difficult in high-energy-cost regions. * The competitive landscape is defined by consolidation and strategic focus, with leaders differentiating through vertical integration, technological superiority in advanced materials, or specialization in high-value niches. ## Key Trends & Outlook The competitive landscape for North American steel producers is being fundamentally reshaped by a significant expansion of trade protectionism. In August 2025, the U.S. announced a significant expansion of its 50% tariff on imported steel and aluminum, now including approximately 400 additional product types such as auto parts, electric vehicle components, railcars, and marine engines, effectively insulating domestic producers from foreign competition. This policy directly counters the primary industry threat: global overcapacity, estimated at over 663 million net tons annually, which is more than six times the size of the entire U.S. market and has led to intense price wars in less protected markets like Brazil. These tariffs create clear winners and losers; domestic producers benefit from higher pricing power, while exporters like Algoma Steel (ASTL) face ongoing 50% Section 232 tariffs effectively closing the U.S. market, leading it to exit blast furnace operations and focus on the Canadian market. The immediate impact is quantifiable, with companies like Tenaris (TS) estimating a quarterly cost increase of $140-150 million from the increased Section 232 tariff on steel imports. Despite global pressures, the near-term outlook for domestic steel demand is robust, driven by specific high-growth sectors. Non-residential construction, fueled by infrastructure spending and the build-out of data centers, has created record backlogs for structural steel producers, with Nucor (NUE) reporting its structural backlog reached its highest levels in company history in Q2 2025. Simultaneously, a rebound in North American light vehicle production, which rose to approximately 3.90 million units in Q3 2025, and the shift to EVs are driving strong demand for automotive-grade and specialized electrical steels, with Cleveland-Cliffs (CLF) securing multi-year contracts with major OEMs. The convergence of protective tariffs and strong domestic demand creates a significant opportunity for efficient, low-carbon Electric Arc Furnace (EAF) producers to gain market share and expand margins. However, the primary risk to the green transition is prohibitively high energy costs, which could delay or cancel critical decarbonization projects, as demonstrated by ArcelorMittal (MT, AMSYF) dropping plans to convert two plants in Germany to carbon-neutral production due to prohibitively high energy costs in June 2025. ## Competitive Landscape The North American steel market is dominated by a few large players, but competition is fierce due to the persistent threat of imports, which has necessitated a shift in competitive strategy. Electric Arc Furnaces (EAFs) now account for over 70% of U.S. steel production, reflecting a broader industry shift towards more efficient and environmentally friendly manufacturing. This transformation is critical in an industry facing global overcapacity estimated at over 663 million net tons annually. Some of the most profitable players, such as Steel Dynamics, compete using a highly efficient, recycling-focused EAF model integrated with their own scrap supply. Steel Dynamics (STLD) operates its EAF mills at an industry-leading 88% utilization rate in Q3 2025, significantly above the industry average. Its OmniSource metals recycling segment provides critical ferrous and nonferrous scrap, serving as a strategic competitive advantage by controlling input costs and ensuring supply. Other firms, such as Cleveland-Cliffs, create a competitive advantage by controlling the entire value chain from mining to producing specialized materials for demanding sectors like automotive. Cleveland-Cliffs (CLF) is the sole U.S. producer of Grain-Oriented Electrical Steel (GOES) and Non-Oriented Electrical Steel (NOES), vital for the electrical grid and electric vehicles. It leverages its ownership of iron ore mines and Hot Briquetted Iron (HBI) production, which provides a low-carbon feedstock for its furnaces, to control costs and quality for its target market. The industry is undergoing significant transformation, with legacy integrated producers like U.S. Steel investing billions to pivot towards the more competitive EAF model to survive. U.S. Steel (X)'s "Best for All" strategy is centered on investing heavily in state-of-the-art mini-mills like Big River 2 (BR2), which features endless casting and rolling technology, while navigating the financial headwinds of its legacy operations. This strategic pivot aims to reduce its cost, capital, and carbon intensity. ## Financial Performance Revenue performance in the steel production industry is sharply bifurcating, largely driven by technological adoption and market exposure. Companies leveraging EAF technology and operating in protected domestic markets are capturing both price and volume growth, while those in more competitive global markets or undergoing costly transitions are experiencing declines. Nucor (NUE) exemplifies this success, reporting a 143% year-over-year surge in net income in Q3 2025, driven by anticipated higher average selling prices in sheet and plate, and increased volumes in steel products. In stark contrast, U.S. Steel (X) reported a 10% year-over-year revenue decline in Q1 2025, highlighting the struggles of legacy producers in transition. {{chart_0}} Profitability also shows significant divergence, primarily based on product specialization and cost structure. Premium margins are being captured by highly efficient EAF producers with low-cost structures and specialists serving high-value niches with significant pricing power. Tenaris (TS), a global supplier of steel tubes and related services primarily for the energy industry, achieved an adjusted EBITDA margin of 24.1% in Q3 2025, demonstrating the profitability of specializing in high-value sectors. Conversely, Algoma Steel (ASTL) reported a negative adjusted EBITDA of -$32.4 million in Q2 2025, reflecting the pressure on producers facing both market access issues and a costly technological transition. {{chart_1}} Capital allocation strategies within the industry exhibit a dual focus: returning significant capital to shareholders for profitable leaders and aggressive deleveraging for companies undergoing transformation or facing financial pressure. Tenaris (TS) exemplifies strong shareholder returns, having completed the first tranche of its $1.2 billion share buyback program in September 2025 and commencing a second tranche of up to $600 million in November 2025. In contrast, Cleveland-Cliffs (CLF) launched an underwritten public offering of 75,000,000 common shares in October 2025 to repay approximately $1.471 billion in borrowings under its asset-based credit facility, a clear example of prioritizing deleveraging to reach its target net debt-to-EBITDA ratio of 2.5 times. The financial health of steel producers is mixed, directly reflecting their competitive position and business model. Companies with strong operational performance and strategic focus have generated robust cash flow, enabling healthy balance sheets. Metallus (MTUS), a specialist in alloy, carbon, and micro-alloy steel products, achieved debt-free status as of June 30, 2025, by settling its remaining $5.5 million principal of Convertible Senior Notes, showcasing the financial strength that a successful niche strategy can provide. {{chart_2}}