More Good News for the Steel ETF

United States Steel Corp. (NYSE: SLX) and AK Steel (NYSE: AKS) are two of the best-performing members of the S&P 500 this year and that has helped make the VanEck Vectors Steel ETF (NYSEArca: SLX) one of 2016’s best-performing industry exchange traded funds. SLX is higher by nearly 68%.

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.

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While SLX and steel stocks have had the wind at their backs this year, that does not mean analysts are ready to forecast a slowdown for the group. In fact, some sell-side analysts remain bullish on some of SLX’s marquee holdings.

“While we remain concerned that U.S. Steel may de-rate on peak earnings as spot steel prices normalise in the coming year, the company deserves credit for recent cost performance, and U.S. Steel’s earnings trajectory may see more sustained upside as longer-term contracts reset into 2017. Reflecting U.S. Steel’s reduced balance sheet risk following debt refinancing and a potential bottoming of loss trajectory in Tubular, we value U.S. Steel at its mid-cycle 5.0x EV/EBITDA, implying $24.50 fair value,” said Jefferies in a note posted last Friday by Barron’s.


Jefferies raised its rating on U.S. Steel, an SLX holding, to hold from underperform.