“Longer term, we believe that captive raw materials and efficient operations are among the keys to solid profits in steel making, with vertical integration less important and input prices now displaying greater volatility than in the past,” Goldsborough said in the Morningstar report. “We believe that investors still should remember the usual caveats about the volatility of steel prices relative to the volatility of other industrial subsectors.”
“We believe that steel prices should remain reasonably high, given a lack of imminent new product capacity of iron ore,” Goldsborough added. “And we believe that the global issues that the industry is facing right now are short term in nature–the market is completely discounting future infrastructure growth in emerging markets.”
Steel-related ETF options include:
- The Market Vectors Steel ETF (NYSEArca: SLX) tracks the 26 of the world’s largest steel producers across the entire steel supply chain, including notable companies like Rio Tinto (NYSE: RIO), Cliffs Natural Resources (NYSE: CLF), Nucor (NYSE: NUE) and U.S. Steel (NYSE: X). It should be noted that BHP Billiton (NYSE: BHP) is excluded from the holdings. The fund follows a market-cap methodology, which makes it top heavy with the top five companies accounting for 41% of the overall portfolio. SLX region allocations include North America 46.5%, Latin America 24% and Europe 12%. The ETF has an expense ratio of 0.55%.
- PowerShares Global Steel (NYSEArca: PSTL) holds 70 steel companies. The overall exposure is similar to that of SLX, but PSTL is smaller and less liquid. Additionally, PSTL holdings include global listings. The ETF has an expense ratio of 0.75%.
- SPDR S&P Metals & Mining (NSYEArca: XME) allocates 33% of its holdings to steel companies. The other two thirds are in metals, mining, coal and precious-metals producers. XME has an expense ratio of 0.35%.
For more information on the steel industry, visit our steel category.
Max Chen contributed to this article.