ETF Trends
ETF Trends

After cheap Chinese steel inundated the markets, the steel industry and metals sector-related exchange traded funds have staged an impressive rally.

Year-to-date, the Market Vectors Steel ETF (NYSEArca: SLX) jumped 41.0% and SPDR Metals & Mining ETF (NYSEArca: XME), which includes a 50% tilt toward American steel producers, surged 46.6%.

Steel is finally making a comeback after years of underperforming. For instance, SLX has shown an average 15.0% annual decline for the past five-years while XME returned an average negative 19.9%.

The slowdown in China was the main culprit in dragging on the steel sector, reports Abigail Stevenson for CNBC. The weaker economy translated to a diminished demand for steel.

Additionally, Beijing was subsidizing its steelmakers with cheap loans, allowing Chinese companies to produce steel on the cheap, which were then dumped in to global markets. In March, steel exports from China surged to 9.98 million metric tons, up 30% to their highest level in a year, according to Bloomberg.

However, since the start of March, U.S. steel has been gaining ground when Congress passed a new customs and trade enforcement bill that allowed the Obama administration to take action against Chinese dumping. The Department of Commerce imposed a 265.79% tariff on Chinese steel, according to the Wall Street Journal.

“Call that protectionist if you want to, I say it is smart policy and one of the most pro-business things President Obama has done since taking office,” Jim Cramer said on CNBC.

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The tariffs also helped prop up the steel-related ETFs, which include significant international exposure. SLX country weights include 38.8% U.S., 18.6% Brazil, 13.4% U.K., 11.1% Netherlands, 7.5% South Korea, 6.4% Luxembourg and 4.4% Bahamas.

Meanwhile, the demand side is also seeing improvements as the U.S. economy also gains momentum.

“The Obama administration’s new tariff on Chinese steel was an absolute game-changer that has effectively negated the No. 1 threat to the American steel industry. Throw in a new and improved economic landscape and I think these stocks have more room to run,” Cramer added.

Market Vectors Steel ETF