How to Invest in Steel
Steel is an alloy of iron that has a carbon content between 0.2% and 2.1% by weight although there are numerous varieties based on its end application. For example, steel with added manganese increases the hardness of the metal and thus may be appropriate for buildings or other construction projects. Meanwhile, ‘stainless’ steel is a popular choice for users seeking a metal that can resist corrosion and this type usually has chromium added to its makeup.
In the modern world, steel has a wide variety of uses, finding its way into everything from infrastructure projects such as railroads and bridges, to consumer goods such as cutlery and wrist watches. The alloy also is crucial to transportation in the form of cars, ships, and trains, suggesting that not a day goes by that we are not influenced in some way by this extremely important metal.
For those seeking exposure to steel, there are a variety of options available. Although investors cannot achieve physical exposure to the product, they can buy futures contracts of a wide variety of steel types. Additionally, there are a number of companies that either process and make steel or mine for the product\’s key ingredient iron ore. Due to this, there are multiple steel ETFs and individual stocks that can allow investors to achieve exposure to the metal.
Ways to Invest in Steel
There are 3 ways to invest in Steel: ETFs, Futures, and Stocks. Click on the tabs below to learn more about each alternative.
What are Steel ETFs?
Investors looking to access steel through an ETF have a few options available to them. While there are not any exchange-traded products available to U.S. investors that invest in physical steel or futures contracts, there are a couple that focus on companies operating in the steel industry. These include:
- Market Vectors Steel ETF (SLX)
- PowerShares Global Steel Portfolio (PSTL)
Both ETFs consist of both international and domestic stocks, with underlying companies involved in a variety of activities that are related to steel production, including the operation of manufacturing mills, fabrication of steel products, or the extraction and reduction of iron ore.
What are Steel Futures?
Steel futures are traded on the London Metal Exchange. Contracts are priced in U.S. dollars per tonne, with a lot size of 65 tonnes +/- 3.5%. Material is stored on warrant within one of the global network of approved storage facilities for LME Steel Billet. Warrants created under the LME Steel Billet must conform to one of nine grade, each of which must meet certain physical requirements.
LME steel futures are clearable in U.S. dollars.
More information on LME Steel Futures:
Steel futures are also traded on the NYMEX under the symbol HRC. Each NYMEX contract represents 20 short tons, and is priced in dollars and cents per ton. NYMEX steel contracts are listed for 24 consecutive months, and settlement is financial.
NYMEX steel futures represent U.S. Midwest Domestic Hot-Rolled Coil Steel, and are subject to NYMEX position limits.
More information on NYMEX Steel Futures:
How to Buy Steel Stocks
For investors seeking to establish exposure to steel, purchasing stock of companies involved in the production of this resource may be an appealing strategy. Because profitability of these companies will generally increase when steel prices rise, this approach can deliver access to steel prices without the complexities of a futures-based strategy.
There are a wide variety of publicly-traded steel companies engaged in a number of different aspects of the industry, including including the operation of manufacturing mills, fabrication of steel products, or the extraction and reduction
of iron ore.
Publicly-traded steel companies include:
- Arcelor Mittal (MT)
- Steel Dynamics (STLD)
- United States Steel Corp (X)
- Schnitzer Steel (SCHN)
- Ternium SA (TX)
For a more complete list of steel companies, see:
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