Investing.com -- Jefferies lowered its outlook for the US steel sector Thursday following media reports of a tentative trade agreement between the United States and Canada that would reduce tariffs on certain steel and aluminum imports to 25% from 50%.

Bloomberg and other outlets reported the preliminary deal, though details remain unfinalized and are not expected to apply uniformly across all products. Different rates may apply to derivative products containing these metals, according to sources cited in the reports.

Canada served as the largest steel supplier to the US before 2025, representing approximately 22% of total steel imports, primarily in flat-rolled products. The country previously held tariff-exempt status. Under current tariff policies, Canadian steel shipments to the US have dropped nearly 50% on an annualized basis compared to pre-Section 232 levels.

For aluminum, the US imported 3.2 million metric tons from Canada in 2024, with Canada accounting for over 60% of US aluminum imports in recent years.

US steel shares declined Thursday on the news. Jefferies noted that while idled Canadian capacity would likely require time to restart and affect US steel prices, the development could signal similar agreements with other major steel-producing trading partners.

The firm assessed the impact on individual companies in its coverage. Algoma would benefit from a potentially tighter Canadian steel market if exports to the US become more economical. Cleveland-Cliffs faces a net negative impact as Canadian steel competes with most of its products, though approximately 15% of the company's volumes are Canadian-based.

Commercial Metals sees little direct impact as Canada does not produce significant rebar volumes, though the firm noted risk that Mexico, a major rebar producer, could seek similar tariff relief. Nucor (NYSE: NUE) and Steel Dynamics would be among the most negatively affected as major producers of flat-rolled steel and plate.

Jefferies maintained Nucor as its top pick despite increased risks, citing inexpensive valuations at current spot steel pricing.