As China's Steel Hits Record Prices, Turn to 'SLX'

Precious metals might be pulling back to start the first quarter of 2021, but industrial metals are thriving. One ETF heading from strength to strength is the VanEck Vectors Steel ETF (SLX), which is up about 27% year-to-date as steel prices in China hit record highs.

“According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China (CFR Qingdao) were changing hands for $170.90 a tonne, up 1.43% from the previous trade,” a article noted. “China’s steel prices also jumped to record highs, on concerns over supply curbs in the world’s biggest producer and exporter of construction and manufacturing material.”

SLX tries to reflect the performance of the NYSE Arca Steel Index, which follows global companies involved in the steel industry. While more than a third of SLX’s lineup is allocated to U.S. steel producers, the ETF has a heavy global tilt, including exposure to ex-U.S. developed markets and emerging markets steel companies.

SLX investors get:

  1. One-Trade Access to the Steel Industry: An industry supporting global industrialization.
  2. A Pure Play with Global Scope: Includes companies involved in a variety of activities related to steel production.
  3. Convenient Customization: Customize overall commodity exposure with targeted allocation to steel companies.
  4. Strong Performance: The fund is up 150% within the past 12 months.

“SLX is poised to benefit nicely from increased steel demand as the global economic recovery picks up speed and from continued investments in infrastructure,” noted an ETF Database analysis. “SLX often trades as a leveraged play on the underlying natural resources, meaning that this fund can experience significant volatility but can be a powerful tool for profiting from a surge in steel prices.”

SLX Chart

A Bullish Atmosphere for Steel

Like all commodities, steel will be subjected to the forces of supply and demand. Support from the Chinese government during the pandemic helped fuel an appetite for steel.

“Production restrictions in China’s top-steelmaking city of Tangshan during the peak demand season have brought down stocks at commercial warehouses and created a ‘bullish atmosphere’ for the market, Sinosteel Futures analysts said in a note,” the article said further. “Iron ore was the best performing commodity in 2020, thanks to China’s early emergence from the pandemic and Beijing’s heavy spending on economic stimulus, particularly infrastructure.”

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