Few exchange traded funds were as positively correlated to the idea of a Donald Trump presidency as was the VanEck Vectors Steel ETF (NYSEArca: SLX), which was one of 2016’s best-performing non-leveraged ETFs.
However, SLX, the only ETF dedicated to steel stocks, stumbled Wednesday as U.S. Steel (NYSE: X), one of the ETF’s marquee holdings, lost a quarter of its value on the back of a weak earnings report.
“U.S. Steel reported a quarterly loss of $1.03 per share, according to Thomson Reuters. That was quite a miss, as analysts polled by were expecting a quarterly profit of 35 cents per share. The company also slashed guidance, expecting full-year 2017 earnings of $1.50 per share, half the Street’s expected figure of $3.05 per share,” reports CNBC.
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. However, it is widely believed the Trump infrastructure plan will be pushed back to 2018, news that has disappointed investors to start 2017.
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.
For more information on the steel industry, visit our steel category.