Supply and demand are the basic fundamentals for any industry, but as the iron ore industry heats up, steel could be in favor.  What factors are leading to a demand for steel and steel-related exchange traded funds (ETFs)?

As emerging markets begin to ramp up again, and the rebuilding of Japan gets underway, the demand for steel should increase.  The demand, just in emerging markets, could translate into 15-20% price increases.  Here is a case of high demand pushing up the prices as the supply diminishes.  The price of steel ultimately filters down into the costs of everyday goods and services, because it’s found in just about everything we use: cars, buildings, bridges, pipes, factories, machinery and equipment.

The world is still learning of the extent of the destruction in Japan, but initial reports who steel plants have suspended operations until safety concerns can be addressed, states John Packard for Steel Market Update.

The tone is set for both developed and emerging economies to build and grow, which positions steel to be positively affected.  Keep an eye on the trends and have an exit strategy in place; prices and demand are not always predictable.

Market Vectors Steel Index ETF (NYSEArca: SLX) is made up of 55% materials; 19% industrials; about half the fund is dedicated to large-caps.

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.