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Investing.com -- Barclays (LON:BARC) has turned tactically cautious on European steelmakers, flagging risks in the sector around softening demand, limited trade policy support, and stretched valuations.
The bank downgraded ArcelorMittal SA (AS:MT) (NYSE:MT) to Equal Weight and Outokumpu Oyj (HE:OUT1V) to Underweight, reflecting concerns that recent share price strength has run ahead of fundamentals.
The analysts pointed out that European steel equities within their coverage have rallied 24% over the past three months, despite deteriorating spread momentum in both carbon and stainless steel.
“We therefore take a tactically cautious view on the space here as equities appear to be pricing in several positive catalysts already – we see a risk of disappointment,” analysts led by Tom Zhang said in a note.
Their downgrade of ArcelorMittal comes as the stock’s valuation now appears “more full.” Moreover, the team believes that “catalysts for the market/Calvert [have] now passed with higher tariff risks into H2.”
While Barclays still sees merit in the company’s long-term positioning, it flagged that the share price now reflects spreads of around €500/t, a level that may be difficult to sustain without a broad recovery in demand and import restrictions.
Tariff-related costs could also escalate following the consolidation of the Calvert JV. Barclays noted that the company had previously guided for around $100 million quarterly impact from 25% tariffs.
With the tariff rate now raised to 50%, the hit could double.
In addition, the prior estimate only included Calvert as a joint venture, but now that ArcelorMittal has taken full control, the associated costs from imported Brazilian slab will be fully consolidated—potentially adding another $100 million per quarter.
Meanwhile, Outokumpu was cut to Underweight with a price target lowered to €3, from €3.3, as Barclays highlighted a “increasingly difficult EU stainless environment, coupled with capex risk into 2026 and strategic question-marks over longer-term growth.”
Beyond these two names, Barclays maintained a cautious stance on the broader European steel sector, highlighting that valuations appear elevated compared to spot HRC spreads.
The bank pointed to ongoing risks from open import arbitrage, weakening pricing trends, and lingering uncertainty around trade policy support.
It retained its Neutral view on the European Metals & Mining sector overall, noting that trade measures announced earlier in the year were “slightly disappointing,” and the upcoming Q2 results are likely to reflect a cautious tone from companies.