Steel’s Stellar Stealth Run

ETF Trends

In somewhat quiet fashion, the $135.2 million Market Vectors Steel ETF (SLX) has surged 17.3% over the past three months.

That does not mean the run is over for steel stocks. In a research note published Tuesday, UBS analysts sounded a reserved, but optimistic tone on some steel names, noting that “steel demand is heating up and the automotive and manufacturing sectors can drive that growth forward,” reports Lee Jackson for 24/7 Wall Street.

Falling prices and oversupply from Chinese producers previously plagued SLX and its constituents, but as we noted in August, there were positive technical indicators emerging for the ETF, including a close above its 200-day moving average for the first-time since March and above average volume on some of the ETF’s up days. [Steel ETF Quietly Soars]

UBS is bullish on Nucor (NUE), having recently raise its price target on that stock to $52 from $50, and Steel Dynamics (STLD). UBS has a $21 target on Steel Dynamics compared to consensus of $18, according to 24/7 Wall Street. Those stocks are SLX’s eighth- and ninth-largest holdings, respectively, combining for about 9.5% of the ETF’s weight.

UBS is not as enthusiastic about Reliance Steel & Aluminum (RS), ArcelorMittal (MT) U.S. Steel (NYSE: X) and AK Steel (AKS). The bank downgraded those stocks to sell ratings, citing weakening fundamentals, 24/7 Wall Street reports. Those stocks combine for 14.7 of SLX’s weight.

One element to SLX’s profile that cannot be ignored is that this is a global ETF. More than 60% of the fund’s weight is allocated to companies based outside the U.S., including a nearly 22% weight to Brazil.

Rio Tinto (RIO) and Brazil’s Vale (VALE) are two of the world’s largest iron ore makers  and those stocks combine for 25.5% of SLX’s weight.

That could work in the ETF’s favor. Last week, the World Bank said it expects higher iron ore prices this year and in 2014 due to improving global manufacturing.  The World Bank expects iron ore prices to average $134 a ton this year and $135 per ton in 2014 compared with prior forecasts of $120 per ton for 2013 and $125 a ton for 2014.

Market Vectors Steel ETF

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SLX

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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