European Steel Stocks Surge After JPMorgan Upgrades on New EU Import Curbs

Shares of several major European steel producers rallied on Friday after JPMorgan reversed its previously cautious stance on the sector, issuing significant upgrades in response to new EU import restrictions that took effect this month.

The Upgrades

JPMorgan analysts double-upgraded Austria's Voestalpine and Germany's Salzgitter to Overweight from Underweight, while raising ArcelorMittal to Neutral from Underweight. The bank had downgraded the sector on March 9 on concerns that geopolitical conflict could hurt demand, a thesis which it now says "has not materialised."

The market reacted strongly to the revised outlook. In early trading, shares of Salzgitter jumped as much as 10.3%, Voestalpine gained nearly 7%, and ArcelorMittal climbed 5%.

Catalyst: New EU Import Safeguards

The upgrades are primarily driven by the EU's new tariff-rate quota (TRQ) regime, which became effective on July 1. According to JPMorgan's analysis, these new rules are set to have a "transformative impact" on the market.

Key aspects of the new policy include:

Ad

• A reduction of roughly 40% in EU steel imports.
• A 50% tariff imposed on any volumes that exceed the new quotas.
• The potential to shift more than 10 million tonnes of demand to European producers.

As a result of these safeguards, JPMorgan has raised its European hot-rolled coil (HRC) price forecast for the fourth quarter to €725 per tonne and expects a restocking cycle to begin by the end of the third quarter.

Analyst Outlook

JPMorgan set a €65 price target for Salzgitter, noting the company has the "highest torque to spot steel prices" as a small portion of its sales are on annual contracts. Voestalpine, assigned a €50 price target, was described as a "laggard" positioned for an earnings recovery.

While ArcelorMittal's price target was increased to €57 from €45, analysts kept a Neutral rating, citing more significant upside potential in Voestalpine and Salzgitter. The bank does not expect a positive earnings surprise from ArcelorMittal's upcoming results on July 30, forecasting its EBITDA will be 5% below consensus. However, analysts anticipate a "strong Q4 earnings recovery" across the sector as the pricing power from the new tariffs takes hold.