What's Next for the Steel ETF?

| About: VanEck Vectors (SLX)

Steel has seen a nice uptrend over the past year, thanks to a global economic recovery that has translated into stepped-up demand for the metals. But now there’s a question of whether the metal and its ETF can sustain their price levels.

Steel prices have begun to decline and many think this trend will continue. According to Robert Guy Matthews of The Wall Street Journal, steelmakers may have overproduced the metal and supply will outpace demand before long.

The massive stimulus packages that were rolled out by governments, especially China, made the demand for steel soar, resulting in steelmakers mass producing the metal. In fact, China’s inventory of steel is more than 11 million tons, and this build up was a major reason that demand for steel rose. As stimulus packages begin to slow down, the demand for steel could likely follow.

It isn’t all bad for the commodity, though. Thomas Ludwig, chief executive of Germany-based steel distribution group Klockner & Co., which sells and processes steel throughout Europe and North America, has said that although real demand for steel is low, it could rise for the rest of the year and steel makers need to be more disciplined to prevent a choke hold on a recovery.

  • Market Vectors Steel ETF (NYSEArca: SLX): up 80.7% year-to-date.

Kevin Grewal contributed to this article.

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