Market Vectors Steel ETF (SLX) Trading Lower Despite Positive TheStreet.com Article (VALE, RTP, MT, BHP)
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Despite a positive article on TheStreet.com, the Market Vectors Steel ETF (NYSE: SLX) is trading down about 0.65% today, to $71.30.
The article notes that the ETF was one of the best in 2009, posting a gain of 110%, and the ETF has soared over 34% since lows hit in February this year. Main holdings include big names like Rio Tinto (NYSE: RTP), Vale S.A. (NYSE: VALE), and Arcelor Mittal (MYSE: MT); the top three holdings represent 32.3% of the portfolio.
The three factors that will carry steel's momentum upward include: global economic recovery, the allocation weighted in top iron-ore producers, and a strong U.S. exposure.
As the globe becomes comfortable again, and debt issues and inflation/deflation problems are levied-off, demand for expansion will naturally increase. With the expansion, particularly in high-growth areas like China, India, and Brazil, comes a need for more infrastructure and transportation, all of which depend on steel. Some investors and market analysts look at steel as the bellwether for economic recovery.
Vale, along with BHP Billiton (NYSE: BHP) also managed to influence Asian iron-ore producers to switch from their from yearly adjustments to a more reasonable quarterly pricing method. The new system will allow for quicker adjustment, as many producers found themselves producing product more cheaply, having to wait for the yearly adjustment until prices could come more in-line with what the globe will pay.
Higher ore prices may weigh on steel mill profit, but the steel ETF design allows it to benefit from the quarterly negotiations, despite the fact that it supposed to track the steel industry as a whole.
Finally, about 40% of the ETF is situated in the U.S. The U.S. is a net exporter of coking coal, iron ore, and other prime ingredients of the base metal. This cost advantage should allow the U.S. to benefit from price increases, while other nations will have to adjust to an increase in their input costs.
The article notes that the ETF was one of the best in 2009, posting a gain of 110%, and the ETF has soared over 34% since lows hit in February this year. Main holdings include big names like Rio Tinto (NYSE: RTP), Vale S.A. (NYSE: VALE), and Arcelor Mittal (MYSE: MT); the top three holdings represent 32.3% of the portfolio.
The three factors that will carry steel's momentum upward include: global economic recovery, the allocation weighted in top iron-ore producers, and a strong U.S. exposure.
As the globe becomes comfortable again, and debt issues and inflation/deflation problems are levied-off, demand for expansion will naturally increase. With the expansion, particularly in high-growth areas like China, India, and Brazil, comes a need for more infrastructure and transportation, all of which depend on steel. Some investors and market analysts look at steel as the bellwether for economic recovery.
Vale, along with BHP Billiton (NYSE: BHP) also managed to influence Asian iron-ore producers to switch from their from yearly adjustments to a more reasonable quarterly pricing method. The new system will allow for quicker adjustment, as many producers found themselves producing product more cheaply, having to wait for the yearly adjustment until prices could come more in-line with what the globe will pay.
Higher ore prices may weigh on steel mill profit, but the steel ETF design allows it to benefit from the quarterly negotiations, despite the fact that it supposed to track the steel industry as a whole.
Finally, about 40% of the ETF is situated in the U.S. The U.S. is a net exporter of coking coal, iron ore, and other prime ingredients of the base metal. This cost advantage should allow the U.S. to benefit from price increases, while other nations will have to adjust to an increase in their input costs.
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