Commodity ETFs: Steel and Natural Gas Outpacing Oil

Car commercials, television news segments, CNBC, the office water cooler. You can't get away from "crude oil conversation" even if you ride a bike to work.

Yet when it comes to where the profits are, there are several other commodities that have appreciated rapidly. And yes, there are several ways that ETF investors have been making money from the trends.

Both steel and natural gas have risen faster than crude over the last week, month and 3-month periods. The Market Vectors Steel Fund (SLX) has jumped 7%, 20% and 38% in those short time intervals. Meanwhile, "nat gas" investors have picked up 6%, 16% and 35% with the United States Natural Gas Fund (UNG).

Steel industry representatives, albeit a source with questionable biases, maintain that there is no evidence to support a slowdown in global steel demand. As early as March, Ian Christmas, secretary-general of the International Institute of Iron and Steel [IISI], exclaimed that global demand for steel would be as vibrant in 2008 as it had been in 2007 (5%-6% growth). Demand from China alone was expected to be closer to 10% for 2008.

The question that everyone wants to know is whether a U.S. recession and/or a Western European slowdown could dampen demand for commodities. Perhaps some commodities... but not steel!

China alone has doubled the number of steel factories over the last 5 years in its country and is at 7000 and counting. Its rapid industrialization may require steel more than any other metal.

Global demand is equally impressive for natural gas, yet supplies are plentiful. This leads many to question why the price of natural gas has been rising so quickly.

Blame it on crude! With oil trading above $115 per barrel, natural gas is increasingly being considered as an alternative solution. (Remember... supply is plentiful!)

Nuclear energy requires additional nuclear power plants, and few politicians want to travel that road. Coal is not a "clean-burning" option. And renewable energies (H20, solar, wind) can't be implemented as quickly.

In contrast, "nat gas" is the cleanest burning carbon-based fuel. Natural-gas-fired electric plants are easy to build. And natural gas powered cars are starting to get recognition by top brands like Honda (HMC).

In truth, I still believe the best way to profit in the global commodity boom, and the best way to diversify, is with the Dow Jones Total Commodity Index (DJP). The asset class itself is probably more important than picking the specific commodity that'll outrun the rest. (Read more about total commodity investing here.)

That said, I'm giving steel and natural gas the respect they deserve. After all, the performance is speaking volumes, liters and gallons. And the United States Crude Oil Fund (USO) is likely due for a surprise pullback before long.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[Jake2]

Just the facts please. Save the advertising for some place else.