After slumping for much of the first half of this year, the VanEck Vectors Steel ETF (NYSEArca: SLX) is surging as highlighted by a gain of 16.7% over the past month. Global steel demand and production data could be behind the steel ETF’s recent rally.
SLX tries to reflect the performance of the NYSE Arca Steel Index, which follows global companies involved in the steel industry. Part of the problem are expectations that the Trump Administration will push off its ambitious infrastructure effort until next year.
“Despite contracting in June by 1.7% US steel output still grew 1.3% in H1 2017 after two years of contraction as higher prices encourage the restart of idled plants and the new Big River Steel plant in Arkansas continues to ramp up output,” reports Frik Els for Mining.com.
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.
“Data released on Monday showed Chinese steel output last month rose 5.7% from the year before to a record 73.2m tonnes, surpassing April’s all-time high of 72.8m tonnes. For the first six months Chinese furnaces pumped out 4.2% more steel, to just under half the global total according to the World Steel Association,” reports Mining.com.
SLX has nearly $156 million in assets under management and holds 27 stocks. Investors should note the ETF’s holdings expand beyond the U.S. US-based companies represent 39.5% of the ETF’s weight while Brazil and the Netherlands combine for over 30%.
Related: President Trump Looks to Again Help Steel ETF
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.
“Strong steel demand growth in developing countries will offset stabilizing demand in developed economies, but it means mostly flat overall global demand for likely the next two decades or more,” according to the World Steel Association. “Combine those factors with declining trends in steel use — due in part to increased production of high-strength, lightweight steels and a sharper focus on reuse and recycling — and the outcome is clear.”
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