Steel Dynamics Aluminum Investment

Steel Dynamics is one of the largest domestic steel producers and metals recyclers in North America. Unlike legacy blast furnace competitors, STLD utilizes Electric Arc Furnace (EAF) technology, which is more energy-efficient and relies on recycled scrap. They’ve recently invested in expanding their capacity as well as building out an Aluminum business which just started to come online and should be at 90% capacity by the end of next year. Their Q4 results were solid but not amazing and deserved a further look into what they are aiming for with their long term strategy.

Where they make their money:

• Steel Operations (The Core): Accounted for $1.4 billion in operating income for 2025. They produced a record 13.7 million tons this year. This segment produces flat-roll steel (automotive, appliances) and long products (structural steel, rail).
• Steel Fabrication: This segment produces joists and deck for non-residential construction. It is a hedge when steel prices fall as this segment’s margins typically expand as their input costs drop. It contributed $407 million in 2025.
• Metals Recycling (OmniSource): Provides a secure supply of scrap for their own mills. In 2025, it saw a 30% increase in operating income ($97M).
• Aluminum Dynamics (The Growth Engine): A new venture into recycled aluminum which cost $2.5B and is finally starting to impact the top and bottom lines. This segment turned EBITDA positive in December 2025 and is expected to be a major profit contributor by late 2026 with an aim for $600-$700M in EBITDA per year once it’s fully operational. Aluminum currently has a domestic supply deficit for 1.4M tons and that’s expected to grow as demand grows. Usually that has been filled with high cost imports but those are even more expensive given the 10-50% tariffs we’ve seen in the last two years.

Key Competitors:

• Nucor (NUE): The primary domestic EAF rival and industry leader in scale.
• Cleveland-Cliffs (CLF): A highly integrated producer focused heavily on the automotive sector.
• U.S. Steel (X): A legacy producer currently undergoing a transition to more EAF capacity.

Performance: The Good & The Bad

The Good (Operational Excellence & Shareholder Returns)

• Record Shipments: Despite a choppy market, STLD shipped 13.7 million tons of steel in 2025, a company record.
• Aggressive Buybacks: STLD repurchased $901 million (over 4%) of its outstanding common stock in 2025. Over the last five years, they have returned roughly 63% of net income to shareholders through dividends and buybacks and have reduced their share count by 33% since 2020.
• Aluminum Momentum: Management raised its utilization outlook for the new aluminum mill to 90% capacity by year-end 2026 (up from 75%). This segment achieved positive EBITDA ahead of schedule and that plus some additional investments they’ve made in steel and recycling are expected to add $1.4B in EBITDA annually once fully operational by the end of 2026/early 2027.
• Safety & Culture: STLD maintains an injury rate significantly lower than the industry average, which management credits for their high employee retention and operational “run-time.”

The Bad (Margin Compression & Seasonality)

• 2025 Margin Compression: Annual net income dropped from $1.5B (2024) to $1.2B (2025). While sales grew, the metal spread(the difference between the price of steel and the cost of scrap) compressed. Average external selling prices dropped $15/ton while scrap costs remained flat. This is always the concern with a business like this as Steel and Aluminum prices can be volatile and downward pressure on those would put serious downward pressure on this stock.
• Q4 Maintenance Outages: Operating income in Q4 was hit by planned (and slightly extended) maintenance at flat-rolled mills, reducing production by ~150k tons.
• Higher Working Capital: The aluminum startup required an additional $450 million investment in growth working capital, which temporarily weighed on 2025 cash flow.

Management Q&A and 2026 Outlook

During the Jan 26, 2026 call, management (Mark Millett and Theresa Wagler) provided several key insights:

• The Paradigm Shift: Management believes the U.S. steel industry is in a structural bull market driven by onshoring of manufacturing, infrastructure funding, and AI/Data Center construction (which requires massive amounts of structural steel). This is true but if so, management has a show us year ahead of them. Expectations are for free cash flow and EPS to soar in 2026 so if they don’t deliver, investors will be eager to get out of this stock.
• The Sinton Transformer Incident: Management addressed a transformer failure at the Sinton mill in early January. They clarified it was a minor 12-hour disruption and they have already installed high-voltage backups, signaling that the teething issues at Sinton, one of their newer steel mills are largely over.
• BlueScope Rejection: Mark Millett spent significant time discussing the rejected offer for BlueScope’s North American assets. He framed STLD as the logical owner and noted that BlueScope’s current strategy is failing to unlock value, suggesting STLD remains disciplined but ready for M&A if the price is right. Bluescope has a far less attractive margin profile than Steel Dynamics so the potential to unlock value and synergies are there. However, Bluescope is already having negotiations with Japan’s Nippon Steel which may be a prelude to STLD increasing their offer.
• Problem Areas to Watch: The primary risk for 2026 is import pressure and interest rate volatility. However, management noted that 50% tariffs on certain aluminum products and mercantilism in trade policy provide a strong defensive moat. The important thing to note is that while that may be true today, these tariffs seem to change every 5th day.

Valuation & Peer Comparison

As of late January 2026, STLD continues to trade at a premium to its historical average but remains attractive relative to its growth profile.

Valuation Summary:

STLD is currently trading at a Forward P/E of roughly 14.2x, which is significantly lower than its trailing P/E. This suggests the market expects a massive earnings recovery in 2026 as the aluminum mill and Sinton reach full profitability. With a PEG ratio below 1.0 (0.7x), the stock is decently valued relative to its projected earnings growth over the next 3–5 years although steel producers tend to have a lower PEG ratio due to the cyclicality of their earnings.

STLD’s higher exposure to the high-margin aluminum beverage can market (which is counter-cyclical) might justify a higher multiple than pure-play steel peers which it currently isn’t getting. I do worry about a potential acquisition and how long that may take to integrate and whether it requires taking on significant debt and/or diluting shareholders with a share offering.

Final Word

With STLD, you are buying growth at a reasonable price but you have to be aware of the cyclical nature of this business. While STLD has some less cyclical businesses and is likely going to see growth from its aluminum business and expanded steel lines, it is still highly dependent on the resilience of the American economy and continued construction boom coming from data center buildouts and on-shoring.

Here, you are buying a best-in-class steel operator that is successfully pivoting into a massive, under-supplied aluminum market. The 2025 margin compression is due to those investments being built but not contributing full margins just yet and with $1.4B in structural EBITDA from new projects about to hit the tape in 2026, the current valuation provides a compelling entry point before the full earnings power of the aluminum segment is realized. While this may take some dips, this is a company that continues to buy back shares anytime they can and have the cash flow to do that without taking on too much debt.

I do like and own this stock although I don’t see it as an amazing value today. However, it’s not a sell for me but also not an add more at today’s prices.

Disclaimer: I am long STLD may be long other stocks mentioned in this article in the near future. This article is for informational purposes only and does not constitute financial advice. Investors should perform their own due diligence or consult with a financial advisor before making any investment decisions.