The fourth-quarter outlook for the steel industry is improved, if the anticipated stronger results in both the steel and recycling businesses come to fruition. If that happens, steel exchange traded funds (ETFs) could get the boost they’ve been seeking.

The steel sector was hit hard by rising scrap metal prices, which were only slightly offset by better margins at the metal recycling business. The fabricated product business has yet to return to profitability, but posted the lowest loss of the year during the third quarter, reports Bridget Frias for Morningstar. [Steel ETFs Trump Dour Forecasts.]

American Metal Market says shipments of steel products dipped slightly in September from the previous month but displayed  surprisingly healthy demand despite a slowly recovering economy. An oversupply of steel, thanks to a lack of customer buying, has kept prices under pressure. [5 ETFs To Play Manufacturing Growth.]

Matthew Curtain for The Wall Street Journal reports that among the major challenges are facing the steel industry are overcapacity, fragmented ownership, rising raw material prices and, in the European market, sluggish demand at a time of weak economic growth.

Next year might be a better one for steel. The president of Albania, Minerals sees demand increasing steadily, particularly in emerging markets. It could ultimately translate into a 15%-20% price increase, says The Wall Street Journal.

There are two ways to get exposure to steel via ETFs. Both funds hold companies involved in the manufacturing and production of the metal.

  • Market Vectors Steel ETF (NYSEArca: SLX): Holds primarily large-cap steel companies in the United States

  • PowerShares Global Steel (NYSEArca: PSTL): Holds the stock of steel companies in Japan (21.6%), United States (13.5%), Brazil (10.5%) and South Korea (9.8%)

Steel ETFs

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.