After more than doubling last year to rank as one of 2016’s best-performing non-leveraged exchange traded funds, the VanEck Vectors Steel ETF (NYSEArca: SLX) is on a tear to start 2017 with a gain of more than 8%.
SLX tries to reflect the performance of the NYSE Arca Steel Index, which follows global companies involved in the steel industry. The ETF has nearly $197 million in assets under management and when it comes to near-term price action, investors should keep an eye on some of the big names among the 27 stocks residing in SLX.
Investors will have to keep a close watch over China, the largest producer of steel, which made up half of the 1.6 billion metric tons produced last year. Beijing has cut back production after the international community accused Chinese producers of dumping excess products on the global market.
SLX “is forming an attractive pattern, a cup-with-handle base with a potential buy point at 43.36. It is the second base since it bottomed in January of 2016, when much of the sector bottomed. Steel is a leading industry. IBD’s steel producers and steel alloy industry groups are in the top 15 of 197 groups.
Some top steel stocks had been trending lower, but they rallied Thursday, apparently on news that President Trump said he will introduce a “phenomenal” tax plan,” reports Investor’s Business Daily.
Iron ore producers, such as Rio Tinto (NYSE: RIO) and Brazil’s Vale SA (NYSE: VALE), are important contributors to SLX’s performance.
“Much of the fund’s strength comes not from steel producers but from miners of iron ore, the mineral that’s purified and eventually turned into steel. Rio Tinto (RIO), Vale (VALE) and Vedanta (VEDL) have been on strong upward price trends for more than a year. They’ve surged roughly 95% to 350% from early 2016 lows,” adds IBD.
Rio Tinto and Vale combine for nearly 30% of SLX’s weight.
The SPDR Metals & Mining ETF (NYSEArca: XME) is an alternative to SLX. XME is not a dedicated steel ETF but features ample exposure to that industry.
XME 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.
For more information on the steel industry, visit our steel category.