SLX tries to reflect the performance of the NYSE Arca Steel Index, which follows global companies involved in the steel industry.
“Last week, President Trump opened an investigation under Section 232 of the Trade Expansion Act of 1962 that could allow the president to impose restrictions on imports if imports threaten to impair national security. Current curbs on steel imports relate to unfair trade complaints filed with the World Trade Organization. The Defense Department reportedly consumes less than 0.3% of the US steel industry’s annual output by weight,” said Fitch Ratings in a note out Wednesday.
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.
“If additional restrictions or duties are imposed, US steel prices could rise, improving profitability of steel producers at the expense of steel heavy equipment and automotive manufacturers. However, these manufacturers could find their products less competitive overseas, suffer more intense import competition, and earn weaker profits. Given the size of US imports, restrictions may hasten rationalization of excess capacity,” according to Fitch.
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