Jefferies says US steel stocks may outperform copper near term

Jefferies said the US steel sector looks more attractive than copper, citing upside risk to earnings and share prices from war-related supply disruptions, trade barriers, and de-globalization. The firm sees EAF steel equities with about 16% upside at current spot prices and highlighted Nucor and Steel Dynamics as top picks. The piece also included mixed tanker updates, including Frontline’s $1.03 EPS and $1.03 dividend, but those were secondary to the broader constructive steel call.

Analysis

The setup is less about steel prices and more about margin durability under constrained imports. If tariff/friction-driven import economics stay broken for a few more months, domestic EAF producers can keep realizing spread capture even without a headline move in benchmark steel, which is why the equity upside can outrun spot. That makes NUE and STLD higher-quality expression than commodity beta: their earnings sensitivity is increasingly a function of utilization, not just price direction.

The second-order effect is on capital allocation across the metals complex. If investors rotate into steel on a relative basis, copper miners may de-rate even if the macro tape is stable, because their earnings are more globally exposed and less protected by policy. The market is likely underestimating how much persistent freight/energy dislocation can suppress import arbitrage and extend the current domestic pricing umbrella into the next 1-2 quarters.

For tankers, the signal is mixed: elevated freight and war disruption support rates, but equities can lag if the market believes the earnings peak is being capitalized at too low a multiple or that supply growth will catch up. FRO looks like a better income carry than a clean momentum trade; NAT remains the weaker version because leverage to spot is higher but quality of capital returns is lower. The bullish consensus on shipping is vulnerable if rate strength is already embedded in the stock and forward guidance fails to re-accelerate.

The contrarian miss is that this is not a broad metals upcycle trade; it is a policy- and logistics-driven relative value trade. If trade barriers tighten further, domestic steel should keep working even in a flat global growth environment, while copper’s sensitivity to China/emerging markets makes it more hostage to any demand wobble. The cleaner expression is long domestic steel versus global cyclicals, not a simple long-metals basket.

Key Decisions for Investors

• Long NUE / STLD for 1-3 months into any weakness: prefer the domestic EAF names as the most direct beneficiaries of import dislocation and policy support; target 10-15% upside with a tighter stop if steel spreads normalize.
• Pair trade: long NUE or STLD vs short a diversified copper miner ETF or a basket of global miners over the next 6-12 weeks, betting on relative earnings resilience and lower non-US demand exposure.
• Sell upside in FRO via covered calls into strength for the next 1-2 quarters: the stock can continue to generate cash, but the risk/reward is less attractive than the market implies if tanker rates plateau.
• Avoid initiating NAT longs here; if you want tanker exposure, FRO is the higher-quality vehicle. NAT’s weaker capital return profile and higher operating leverage make it the less favorable expression in a range-bound rate environment.
• If steel rallies on no new price move, consider trimming rather than chasing after a 10% move: the best edge is in the earnings revision cycle, not the commodity headline.