The NYSE Arca Steel Index is up 18% in 2021 and almost 190% the past year. The upward swing is strengthening the VanEck Vectors Steel ETF (SLX).
SLX tries to reflect the performance of the NYSE Arca Steel Index, which follows global companies involved in the steel industry. While more than a third of SLX’s lineup is allocated to U.S. steel producers, the ETF has a heavy global tilt, including exposure to ex-U.S. developed markets and emerging markets steel companies.
On September 9, 2020, SLX witnessed the proverbial 'golden cross' when its 50-day moving average crossed up the 200-day moving average. Since then, SLX has been climbing with its current 50-day average up 32% versus its 200-day figure.
In the one-year chart, the relative strength index (RSI) is just below overbought levels at 58.50. Finicky traders looking for an area of value as an entry point may watch the fund to see if touches closer to the 50-day moving average.
A False Alarm on Steel Weakness?
Steel prices made an about-face after showing initial signs of weakness in February. For steel and SLX investors, this may sound like a melodic tune, but its plain noise to the ears of fabricators and manufacturers.
"Signs last month that steel prices were beginning to lose steam proved premature," an article said in The Fabricator. "Price tags for flat-rolled and plate steel products have continued to move upward, setting new record highs week after week. Moving up along with steel prices are the anxiety levels of fabricators and manufacturers who must pay unprecedented prices for their raw materials."
"Steel Market Update’s check of the market on March 8-9 showed the benchmark price for hot-rolled steel reaching $1,270/ton ($63.50/cwt), topping the previous high mark set in 2008 by $200/ton," the article added.
Since falling 55% on March 25, the NYSE Arca Steel Index has risen by almost 70%.
“This is crazy. I’ll tell you one thing, my customers can’t stay in business at these price levels. We’re having a hard time passing on the increases,” one manufacturer in the Midwest told SMU.
“Restricted supply with the current demand makes pricing anyone’s guess. There is nothing there to stop the madness, although we are reaching a critical cost/affordability point with customers. It could force some customers out of the game,” commented one service center executive.
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