Steel & Bulk Commodities Sector Primer

Steel earnings read cheap at the top of the cycle and dear at the bottom; the trailing multiple misleads at both ends. Producers here are volume businesses priced off three marks: the steel spread, the iron ore cost curve, and the met coal benchmark. Spot prices and trailing EBITDA swing hard with the cycle, so last-twelve-months multiples and a generic DCF on reported cash flow misprice the equity at the extremes. The work is to rebuild normalised earnings at through-cycle marks, map the issuer to the right margin driver (spread for steelmakers, cost position for bulk miners), then value on a cyclical DCF, cross-checked on mid-cycle EV/EBITDA, with enough balance-sheet headroom to survive the trough.

Steel and iron ore valuation benchmarks by business type

Where a company sits on the chain from mine to coil decides the margin it earns and the multiple it can carry. These are the primer's illustrative mid-cycle bands; its worked examples run at $900/st Midwest hot-rolled coil (HRC), $375/st scrap, $90/t iron ore and $200/t premium met coal.

The primer's DCFs discount at 9%. The band is low because EBITDA flatters this sector: at one integrated producer in FY2025, sustaining capex took about 44% of EBITDA per tonne before any growth spend. Leverage matters more than the multiple at the trough. Net debt below 1.0x mid-cycle EBITDA is conservative, 1.0-2.5x is normal, and above 2.5x is stretched.

Worked example: a steel valuation from trough to mid-cycle

Take Halton Steel, the primer's hypothetical EAF producer: 10.0 million short tons of capacity, $350/st of conversion and overhead, and $1,500 million of net debt. At the $525/st spread its mid-cycle margin is $175/st. The model starts at the trough ($75/st and 78% utilisation) and reverts both to mid-cycle over four years. It deducts $540 million a year of sustaining capex and the working capital the recovery ties up, then discounts at 9%.

The screen lands $1,072 million above the DCF because a multiple skips the trough years, the sustaining capex and the working capital. Year 1 shows the gap: EBITDA of $798 million converts to only $133 million of free cash flow. Price the company off the five-year average HRC of $1,014/st and the screen equity jumps to $10,782 million, about 1.8 times the base-case screen. Take $50/st off the spread instead and DCF equity roughly halves, to $2,371 million.

The primer prints the ten-year schedule and an HRC-by-scrap grid, then runs an iron ore miner through a 20-year DCF and a met coal producer through the same reversion model. The Excel model reproduces all three.

Which steel and iron ore valuation method fits which company

What the full primer adds

The primer works through the method step by step: listed company types, the mine-to-steel value chain and route ladder (BOF vs EAF), segment economics, then the spread and cost-structure build. Valuation frameworks cover normalised EBITDA and through-cycle multiples. Worked examples walk an EAF steelmaker through a cyclical DCF and run iron ore and met coal producers on the same price assumptions, with applied cases on steelmakers and bulk miners. Screening metrics, policy and the US premium, risks, and a glossary close the method.

Free guides on the site cover the steel spread and EAF margins, the iron ore C1 cost curve, EV/EBITDA through the cycle, met coal vs thermal coal, and EBITDA per tonne comparisons. To see the framework applied to real companies, read the research profiles on ArcelorMittal, Nucor, Cleveland-Cliffs, Vale, Fortescue, and Warrior Met Coal.

The companion Excel model runs to thirteen sheets, from the archetype DCFs to a through-cycle screen. Every price sits on one assumptions sheet, so when the marks move you rerun the steelmaker and bulk frameworks and the numbers follow.

Sheets: Quick Start, Instructions, Assumptions, EAF Steelmaker, Iron Ore, Met Coal, Integrated BF-BOF, Valuation Summary, Cycle Scenarios, Cost Curve, Leverage Screen, Sensitivity, Dashboard.