North American metals earnings diverge: steelmakers benefit from delayed price increases, aluminum processors struggle with execution, and gold miners face greater cost scrutiny
JPMorgan believes steelmakers can still benefit from price pass-through in the fourth quarter, although leading indicators for construction are weakening. Demand and earnings performance vary across aluminum processors, while gold equities require a comparison of costs, valuations and the timing of growth delivery.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
JPMorgan’s view is that higher prices can still support earnings at some steelmakers, but divergent demand, production ramp-up costs and cost pressures at gold mines make it difficult for metals companies to share the same upward earnings trajectory.
Are steelmakers’ improving earnings driven by demand or price pass-through?
Reported results show that cost control and price realization both contributed to the improvement. Cleveland-Cliffs’ third-quarter unit cost of sales fell by 17 dollars per ton from the previous quarter, better than the company’s earlier guidance for a decline of 10 dollars per ton. JPMorgan expects Nucor’s fourth-quarter outlook to benefit from the delayed pass-through of previous price increases and maintains its overweight rating.
Reliance’s improvement also included market share gains: third-quarter shipments, prices and the contribution from the DHS contract all exceeded guidance. The company’s fourth-quarter earnings guidance of 7.40–7.60 dollars per share was about 30% above the Bloomberg consensus before the earnings release. JPMorgan attributes this to its leading market position and efficient price realization.
With supply currently tight, why remain alert to future demand?
US hot-rolled coil lead times remain significantly longer than normal: the latest SMU reading rose from 8.7 weeks to 9.1 weeks, versus a normal range of 4–6 weeks. This supports the view that the market is currently tight, but forward-looking demand signals are weaker.
The Architecture Billings Index for September fell to 44.7 from 47.2 in August, while the new design contracts index fell to 43.7, remaining below 50 for 31 consecutive months. The indicator typically leads nonresidential activity by 9–12 months. On this basis, JPMorgan believes sectors accounting for about half of steel demand face challenges, while energy infrastructure and data centers are relatively resilient.
Construction starts data also differ by time window: total starts fell 1.5% month on month in September, including a 6.3% decline in nonresidential starts; yet total starts over the past 12 months were still up 13.6% year on year. Recent earnings improvement and pressure on future projects can coexist.
Aluminum processing demand has bright spots, so why can profits still disappoint?
Kaiser Aluminum missed expectations in the third quarter because of both the timing lag in passing through metal prices and execution issues. Packaging shipments were weak and incurred start-up costs, while the automotive business was affected by planned shutdowns. Together with lower scrap aluminum utilization and higher metal consumption costs, these factors reduced margins by 640 basis points, equivalent to about 28 million dollars.
Demand is not strengthening across the board. New aluminum sheet orders rose 16% year on year in September, after falling 3% in August; growth in extruded products rose from 8% to 13%. The end of aerospace destocking and strong activity in general industrial and semiconductor markets supported aluminum sheet demand.
During the same period, US domestic can sheet orders fell 17% year on year and exports fell 40%, after both had grown the previous month. JPMorgan noted that this single month’s data contrasted with the descriptions of strong or stable demand in the earnings reports of Kaiser Aluminum and Steel Dynamics.
Why has new capacity not immediately translated into profits?
Steel Dynamics was weak in the third quarter, mainly because its aluminum rolling project ADI posted a loss of 26 million dollars, while market consensus had expected a profit of 22 million dollars. The main performance of its steel operations and processing business was broadly in line with expectations.
JPMorgan believes there are business reasons for losses during the ramp-up of a complex plant. Although the equipment issues have been resolved, investors contacted by the bank have lowered their previously high expectations for ADI earnings in fiscal 2027: there is a lag between repairing equipment and the plant achieving its expected profitability.
Why do gold equities place greater emphasis on costs and the timing of growth?
Rising yields weighed on short-term sentiment toward the gold sector. JPMorgan continues to favor Barrick, which it rates overweight, citing buybacks, improved operational execution and the bank’s forecast of an approximately 9% compound annual growth rate in production through 2028.
For Agnico Eagle, which it rates neutral, JPMorgan expects third-quarter cost pressures to outweigh the benefits of lower royalties. The stock has performed strongly and trades at a relatively high valuation, while growth contributions are further out, so cost changes in the earnings report carry more weight in the near-term assessment than a production-growth story alone.
