By Kevin Grewal, Editorial Director at www.SmartStops.net
Over the past seven months of the year, many investors have been concerned about what has caused the recent uptrend in base metals and are pondering whether it has been fueled by real demand or has been supported by stockpiling and speculation.
It appears that most signs are indicating that the uptrend, especially in steel, has been caused by an increase in real demand, primarily by China. China has witnessed an increase in consumption of steel due to its jump in infrastructure and construction spending, as well as an increase in auto sales fueled by a growing economy and middle class. Many analysts suggest that this trend will continue and eventually have a domino effect and trickle down to other emerging nations like South Korea, which will further drive the demand for steel.
In addition to this, it appears that the “cash-for-clunkers” program implemented by the Obama administration has caused an increase in the demand for automobiles domestically, which indirectly has increased the demand for steel in the U.S. Most suggest that this is just temporary; however, optimistic data suggesting that manufacturing in the U.S. is improving could potentially enable this demand to be sustained.
In a nutshell, it is demand that has fueled the uptrend in steel and base metals and if this global demand can be sustained the following equities will be poised to benefit from the trend:
ArcelorMittal (NYSE:MT), which has more than doubled from a March low of $17.10 to close on Friday at $35.49.
Rio Tinto (RTP), up nearly 100% from a January low of 79.17 to close at 158.29 on Friday.
Market Vector Steel ETF (NYSEARCA:SLX), rebounding after witnessing a March low of 22.14 to close at 47.66 on Friday, an increase of 115%.
When investing in these equities, keep in mind the inherent risks involved. A good way to help mitigate these risks is by using an exit strategy which identifies when an uptrend could be in trouble. According to the latest data from www.SmartStops.net, the price levels at which at upward trend could be coming to an end for the mentioned equities are: MT at $33.00; RTP at $147.64; SLX at $44.24. These price levels change on a daily basis and updated data can be accessed here.