Cart (0)
business newsSupply and Demand Likely to Push Down Steel ETFs
There are excess capacity concerns in the industry, which could increase the level of imports and result in downward pressure on prices.
PRINT
 |
|
Imbalances in global microeconomic forces are expected to take their toll on the steel industry, providing negative price support for the metal and exposing the Market Vectors Steel ETF (SLX) and the PowerShares Global Steel (PSTL) to feel the wrath.
According to a recent report by Credit Suisse, scrap steel prices in the last quarter of this year are expected to decline due to excess supply and weaker demand growth. On the supply forefront, the recent lifts in scrap prices, which are up nearly 40% over the last two months, have boosted supplies of the scrap metal in yards resulting in excess supply. Additionally, global production of steel has increased by nearly 18% since June 2009.
On the demand side, consumption of steel from a global perspective decreased 3.4% in June 2010 from a month earlier. Additionally, investment in steel-intensive infrastructure and commercial and residential construction in China has slowed, which was a huge global demand driver. China also canceled export-tax rebates on some steel products to avoid the need for imports and help stabilize prices. Lastly, fears of a sustainable economic recovery in the US continue to loom, forcing the Federal Reserve to revise its GDP growth outlook downward for the remainder of the year, which will likely further hinder demand for steel.
In a nutshell, these aforementioned trends in supply and demand are resulting in excess capacity concerns in the steel industry, which could increase the level of steel imports and result in downward pressure on prices of the industrial metal, having an impact on these ETFs:
- Market Vectors Steel ETF, which boasts metals and mining giants Vale (VALE) and Rio Tinto (RTP) as its top holdings and gives exposure to Reliance Steel and Aluminum (RS) and Nucor Corp (NUE) as well.
- PowerShares Global Steel, which holds steel giants such as Posco (PKX), ArcelorMital (MT), and Companhia Siderurgica Nacional (SID).
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
