Steel equities aren’t considered a glamorous asset class. If anything, the group is a reminder of America’s once-dominant perch on the global industrial stage.
Glamour and history lessons aside, steel stocks may be worth evaluating this year, and the VanEck Steel ETF (NYSEArca: SLX) makes that process an efficient endeavor for investors. The only exchange traded fund dedicated to steel equities follows the NYSE Arca Steel Index and is higher by nearly 6%.
SLX, which debuted almost 17 years ago, holds just 25 stocks, and while that lineup is concentrated, it is representative of the current state of the investable global steel industry. It is an industry worth examining as prices bounce back.
“Prices for the commodity have rebounded from the low at the end of last year, with various producers announcing price hikes from December into February. While rebar and plate prices are still off from the extreme levels seen about a year ago, they are up modestly to start the year and may be poised to move higher,” noted Coulter Regal, associate product manager at VanEck.
Importantly, SLX components have compelling catalysts ahead that may not yet be factored into steel equity prices. As Regal points out, those include a favorable seasonal period, international demand, improving demand from the automotive sector, and potential benefits by way of the U.S. Infrastructure Act.
Indeed, infrastructure legislation has long been viewed as a catalyst for basic materials stocks, and that is the universe in which SLX components dwell. The Infrastructure and Jobs Act signed by President Biden promises $550 billion in spending — a large enough sum to perhaps benefit a slew of industries, including steel.
“The boost in U.S. infrastructure spending could help mitigate any moderating economic growth and support demand for steel. Spending on renewable-energy projects, like wind turbines, is also expected to provide additional demand for steel,” added Regal.
Rising international demand for steel is pertinent for SLX investors on multiple fronts. Domestic stocks account for 50.69% of the ETF’s weight, and some of those firms are levered to the steel export story. Second, SLX’s nearly 40% combined allocation to Brazilian, Dutch, and Australian steelmakers could be an attractive trait against the backdrop of soaring international demand.
“The steel industry is set for a continued rebound, with increased infrastructure spending, expected demand overseas and a recovery in automotive production all contributing to the positive outlook. Investors should keep an eye on the global steel industry as an interesting area of the market,” concluded Regal.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
