How Emerging Markets Prop Up Steel ETF

The steel exchange traded fund (ETF) is up more than 100% since the market lows, and demand from emerging markets may continue to keep the industrial metal strong if it doesn’t level off.

Don Dion for The Street explains that emerging markets will continue to keep the need for basic materials strong, taking iron ore and steel companies on a rally of their own. China has a $300 billion commitment to beef up their infrastructure, which could continue to feed Market Vectors Steel (SLX).

The country’s steel production jumped up to an 11-month high in May, undermining efforts of the world’s largest steelmaker to obtain a deeper iron ore price cut, says MSN News.

It isn’t just China that’s increasing demand for steel, however. Many emerging markets are in recovery mode, and these markets drive global steel demand. As a result, the steel market is expected to be tight through 2013, according to HSBC Global Research. Subtracting China from the equation, 78% of growth in steel demand is expected to come from emerging markets from 2007-2013.

SLX is closely tied to the price of physical steel, but its components are companies involved in the production of the metal, or the extraction of iron ore.

• Market Vectors Steel ETF (SLX): up 61.6% year-to-date

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