Steel prices have tripled. Now Bank of America is sounding the alarm

It's very appropriate to call this a bubble," Bank of America analyst Timna Tanners told CNN Business, using the "b-word" that equity analysts from major banks typically avoid.

After bottoming out around $460 last year, US benchmark hot-rolled coil steel prices are now sitting at around $1,500 a ton, a record high that is nearly triple the 20-year average.

Steel stocks are on fire.

Nucor (NUE) has spiked 76% this year alone.

While "scarcity and panic" are lifting steel prices and stocks today, Tanners predicted a painful reversal as supply catches up with what she described as unimpressive demand.

"We expect this will correct — and often when it corrects, it over-corrects," said Tanners, a two-decade veteran of the metals industry who authored a report last week headlined "Steel stocks in a bubble."

'A bit frothy'

Phil Gibbs, director of metals equity research at KeyBanc Capital Markets, agreed that steel prices are at unsustainable levels.

"This would be like $170-a-barrel oil.

It's just a matter of when and how it happens."

Gibbs said he is "more confident the steel price is in a bubble," rather than that steel stocks themselves are in a bubble.

The steel bubble buzz is just the latest debate about the sustainability of booming pockets of the market in this era of rock-bottom interest rates.

Much like lumber, the steel industry was caught off guard by the rapid recovery in demand that began last summer — especially in the auto industry.

"All of a sudden people were buying lots of cars," said Tanners, the Bank of America analyst.

Steel inventories shrank rapidly and shipments were delayed, just as steel buyers began ordering more than usual.

'Peak' prices?

The good news, for steel buyers at least, is that analysts say all of the US steel production capacity that was idled during the pandemic has returned.

That's why Tanners said she's very confident the shortage will soon end, causing steel prices to collapse.

History shows that steel stocks "tend to peak" a month or so before steel prices, Tanners wrote in her report.