Steel ETF Needs a Global Rebound

Steel could be facing a turning point, as some analysts believe that the worst may be over for this recession-wounded commodity – albeit, cautiously. Will this be enough for related exchange traded funds (ETFs) to deliver?

Months of low demand and slow building inventory caused the steel industry to lose strength in the last year. Recent economic data suggest, however, that prices and demand are again on the rise, production indexes are up and some mills are firing up idled blast furnaces, reports Emily Glazer for MarketWatch.

Since the March 9 market low, the related ETF is up 66.3%. This rebound is taking place as the recent purge of inventories finally tapers off and supply and demand begin to find a balance.

Global steel production fell 24% in the first four months of 2009 compared with the same 2008 period. Steel is also a global commodity, so the worldwide credit crunch had a severe impact on the metal.

While China leads the market , its January-April steel output is still down 3.9%, German production is down 53.1%, Japan’s is down 43.6% and U.S. output is off 53.4%. Many believe that China drives the steel market. Other emerging markets may also assist in a recovery of this commodity as they continue recovering.

• Market Vectors Steel ETF (SLX): up 31.2% year-to-date

Comments

[dirtyharry:]

Even with large Chinese market share (about 1/3) and strong growth, this alone is not enough to offset the rest of the world's decline. China is also susceptible to future decline as the U.S. recession deepens into a depression. With U.S. unemployment on the rise, major states facing bankruptcy, and Option ARM mortgages about to reset, it doesn't make sense to expect a building spree in the near future. This, on top of literally millions of homes sitting vacant and more to come via a wave of foreclosures between 2010 and 2012, a further run up in basic material prices like steel and copper seems far-fetched.

Expect steel to revisit lows sometime in 2010 or 2011, before finally turning up. The upturn will be a result of passing the point of maximum pain in the housing markets, and inflationary pressure brought on by the relentless increase to our money supply.

Jul 12 05:05 PM