Last week, Indian company, Tata Steel Ltd. (NYSE: TATA) posted earnings which exceed analysts expectations. Does this indicate that steel stocks and exchange traded funds (ETFs) have room to build up?

Fourth quarter profit for Tata Steel was up 72%, after they sold their U.K. unit and the outlook for raw materials costs at a European unit will squeeze margins in the first half for European operations, reports Abhishek Shanker for Bloomberg. Tata Steel sales at India’s biggest steelmaker rose 23% to $7.59 billion. [Steel ETFs Look for Reinforcement.]

“The pricing environment remains tough because raw material prices are moving far ahead of steel prices,” said Rakesh Arora, head of research at the Indian unit of Macquarie Group Ltd. in Mumbai. “While Tata Steel Europe is trying to get some raw material from its own sources in the fiscal year 2013, its impact will be visible in three to four years.”

Meanwhile, China and India’s steel production and demand is anticipated to hit a record in 2012, while rapid growth fuels the drive. Strong economic growth and a cheap production base are reasons that the steel consumption will sustain, according to The Wall Street Journal. [Supply and Demand Favors Steel ETF.]

Market Vectors Steel Index Fund (NYSEArca: SLX) is up 18.8% over the past year, and is in a general uptrend the past week. PowerShares Global Steel (NYSEArca: PSTL) is also trending up, and is up 14% over the past year.

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.