Steel's scorching rally may have investors feeling bullish, but JPMorgan analyst Bill Peterson is throwing in a dose of caution. While Section 232 (S232) tariffs have fueled a buying frenzy, the reality of demand stagnation, rising scrap costs and looming economic uncertainty could keep stocks from fully cashing in.

Tariffs Spark A 36% Rally, But Demand Stays Stuck

The restoration of full 25% S232 tariffs starting March 12 sent Hot Rolled Coil (HRC) prices soaring 36% year-to-date, with mills scrambling to raise prices. But here's the kicker-real demand hasn't budged.

Industry utilization sits at around 75%, unchanged month-over-month. Peterson warns of a potential de-stocking wave in the second half of the year as inventory levels remain healthy and mills ramp up capacity.

Import Pressure, Recession Risks Lurk

Despite tariff-driven price hikes, steel faces headwinds from cheap imports. HRC offers in the low $700s for June-July delivery threaten domestic pricing power and with no 'glass ceiling' protection from quota-limited countries, pressure could mount.

Adding to the uncertainty, blanket tariffs on Mexican and Canadian steel have been delayed a month, but a Donald Trump presidency could bring renewed scrutiny to the S232 framework.

Meanwhile, JPMorgan's economic team is slashing U.S. GDP growth forecasts, seeing a real risk of a recession squeezing steel demand.

Who Wins In This Balancing Act?

JPMorgan is adjusting its price targets, betting on some players over others.

Nucor Corp (NUE  ) gets a price target bump to $156, with Peterson favoring its diversified product mix as a buffer against volatility.

United States Steel Corp (X  ) sees its target rise to $43, with its valuation looking attractive despite deal risks.

Steel Dynamics Inc (STLD  ) moves up to $140, but remains a 'show-me' story with its aluminum rolling mill ramp-up still uncertain.

Cleveland-Cliffs Inc (CLF  ) was left unrated due to leverage concerns and exposure to Canada's auto market.

Investors Look Past Q1, Eyes On Q2 & Beyond

While first quarter results may show the strain of lagging price impacts and rising costs, investors seem more focused on the back half of the year.

With estimates now reflecting stronger S232-driven pricing, steel stocks could see earnings power improve-if demand holds up.

The big question: can mills maintain momentum, or will recession fears and import pressure cap gains? JPMorgan's call? Proceed with caution and pick your steel bets wisely.