In the case of XME, that ETF has been benefiting from rebounding areas of the mining industry that were previously punished, including gold, coal and steel. Many industrial metals and miners rallied on the belief that China would support growth through stimulus measures, augmenting demand for metals while enticing investors to jump back in.
“More sustainable free cash flow (FCF) generation has relieved the pressure to sell assets, raise equity or cut dividends. Reflation pressures should be modest and supply discipline should hold for most mined commodities. Furthermore, domestic steel is benefiting from trade curbs and infrastructure spending prospects,” according to Fitch.
Donald Trump in the White House is widely seen as a catalyst for the steel industry. During the campaign, Trump proposed significant infrastructure spending as an avenue for boosting the U.S. economy. If those plans see the light of day, SLX and steel stocks could benefit.
According to Trump’s book, “Crippled America: How to Make America Great Again,” he has called for a “trillion-dollar rebuilding program” that will be “one of the biggest projects this country has ever undertaken.”
“Early cuts to steel capacity resulted in better capacity utilization but not overall production cuts. Alumina and aluminum cuts brought better market balance but net smelter capacity additions and restarts cap upside,” adds Fitch.
For more information on the steel industry, visit our steel category.