Investing.com -- UBS analysts have revised their outlook on European steel stocks, in a note dated Tuesday, citing improving market conditions and stronger policy support as key factors behind their updated recommendations.
The brokerage raised its price targets for ArcelorMittal (NYSE:MT), voestalpine, and SSAB, reflecting shifts in global trade dynamics and policy measures that are expected to benefit the European steel industry in the long term.
A major driver of this improved outlook is the reallocation of investment capital from the United States to Europe.
The removal of Germany’s debt brake, coupled with uncertainty surrounding U.S. trade policies, has prompted investors to seek opportunities within European markets.
Additionally, the European Union’s Steel Action (WA:ACT) Plan (SAP) is expected to ease decarbonisation costs while strengthening trade protections against foreign competition.
UBS analysts note that although immediate earnings growth may be limited in 2025 and 2026, the sector’s recent stock re-rating appears justified given these structural changes.
The SAP outlines measures to enhance the competitiveness of European steelmakers, including improved energy and scrap cost structures, tighter Carbon Border Adjustment Mechanism (CBAM) regulations to curb greenwashing, and an expansion of trade restrictions on imports.
UBS analysts flagged that, while the transition to hydrogen-based steel production remains financially challenging, stricter safeguards on imports and incentives for low-carbon steel could bolster domestic production and profitability.
"We were encouraged by the Commission’s willingness to address the issue of carbon leakage for CBAM goods exported to third countries," they noted, underlining the importance of these regulatory changes.
Germany’s ambitious infrastructure spending plans also contribute to the improved market outlook. While UBS analysts previously viewed the market’s reaction to the German government’s increased spending as excessive, they acknowledge that these investments will likely have a multiplier effect on demand for steel products.
However, the benefits from this fiscal stimulus may not materialise until beyond 2026. In the nearer term, UBS sees a more immediate impact from policy-driven trade measures, stating, "The ~15% reduction in safeguard/import quotas and the introduction of anti-dumping duties should meaningfully reduce imports in the coming years."
These protections, combined with tighter CBAM enforcement, are expected to strengthen pricing dynamics across the sector.
Despite the broadly positive outlook, risks remain. UBS flags the potential impact of U.S. trade tariffs, particularly under Section 232, which could create headwinds for European producers with significant exposure to the American market.
ArcelorMittal, for instance, reported that similar tariffs imposed during a previous U.S. administration cost the company approximately $100 million per quarter.
While new tariffs may be partially offset by higher domestic steel prices in the U.S., increased levies on Canadian and Mexican imports could still negatively affect earnings.
UBS analysts also caution, "The second order effect of tariff risks will clearly be on the demand outlook in Europe. If the US imposes additional tariffs on Europe, this could be an additional demand headwind, but this remains highly uncertain and likely to be offset by the EU stimulus packages we have observed so far."
Among the European steel companies UBS covers, ArcelorMittal remains attractive, even after its recent stock re-rating.
The company is trading at roughly three times its estimated 2026 enterprise value to EBITDA ratio, while also demonstrating strong organic growth potential.
SSAB, meanwhile, stands to benefit from U.S. tariffs and increased European defence spending, making it another preferred pick for investors.
Conversely, UBS analysts note that while voestalpine is poised to gain from EU policy support, its low free cash flow limits its upside potential following the recent share price rally.
UBS expects European steel producers to see a gradual improvement in market conditions as government policies and trade protections strengthen the industry’s position.