The VanEck Vectors Steel ETF (NYSEArca: SLX) is up about 15% year-to-date and resides just 3% below its recent highs, but has been mostly flat in recent weeks. SLX’s recently lethargic performance is not stopping some technical analysts from presenting bullish forecasts on the lone steel exchange traded fund.
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.
“Investors can see that the Steel ETF (SLX) remains inside its rising trend channel. As long as this remains the case, it’s bullish. But there’s more,” according to ETF Daily News. “A big test is looming for steel bulls. SLX is now testing this year’s price highs. “This “breakout test” is particularly important because it comes as steel prices (SLX) are straddling the lower side of the rising trend channel.”
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.
Related: Where to Look for Value in Steel ETFs
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.
“A steel ETF breakout here would be huge for steel bulls and keep the bullish trend channel intact. For that to happen, the bulls want to see a price breakout above the prior highs on a closing basis (and preferably on strong volume). Note that a breakout here would target $50 next (the 2013 & 2014 highs),” reports ETF Daily News.
“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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