Exchange traded funds that invest in the steel industry have been trending lower in 2011 after peaking in February, but investors are hoping quarterly results from a sector bellwether can provide support to the ETFs.
Steel Dynamics (NasdaqGS: STLD) reports second-quarter results after Monday’s closing bell, and analysts want to see if the company can match a successful first quarter. The company kicks off the steel earnings season and Wall Street analysts are looking for profit of 39 cents a share, on average. [Supply and Demand Favors Steel ETFs]
The credit crunch has slowed global construction and put a strain on the steel industry, but development in emerging markets is a long-term positive on the fundamentals.
“Following significant consolidation in the prior cycle, the steel sector as a whole is healthy and is positioned for further growth as steel consumption recovers. While the recovery will likely continue to be erratic and uneven, broad-based demand improvement across most key steel end markets is occurring and is expected to further strengthen in the coming years as economic conditions gradually improve,” said Jefferies analysts in a recent note on the U.S. steel industry.
“While U.S. steel prices have trended downward in recent months on concerns of slowing demand growth, further downside risk appears limited given firm raw materials pricing and a balanced supply and demand environment,” they added.
Market Vectors Steel (NYSEArca: SLX) is down about 7% so far this year. The ETF, which has more than $200 million in assets, focuses on industrial steel companies and basic materials suppliers. PowerShares Global Steel (NYSEArca: PSTL) is also in negative territory for 2011. This ETF focuses on large-cap steel companies on an international level, in countries such as Brazil, Germany, Korea, South Africa and the U.S.
Both ETFs hold Steel Dynamics shares.
Market Vectors Steel
Tisha Guerrero contributed to this article.