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Steel ETF Steady Amid Sector Downgrade

This article was originally published on ETFTrends.com.

The VanEck Vectors Steel ETF (SLX) was mostly steady Monday even after a major Wall Street bank downgraded domestic steel stocks, citing supply concerns.

“Credit Suisse on Monday downgraded the U.S. steel sector as it expects prices to fall due to oversupply, stemming from the Trump administration’s move to slap tariffs on Chinese imports,” reports Reuters.

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 heavily global tilt, including exposure to ex-US developed markets and emerging markets steel companies.

SLX, the only US-listed exchange traded fund, dedicated to steel equities, is down more than 2% over the past week and lower by more than 3% year-to-date.

Credit Suisse pared its rating on the U.S. steel industry to Marketweight from Overweight. The bank also lowered ratings on Nucor Corp (NUE) , Steel Dynamics (STLD) and Cleveland Cliffs (CLF) to Neutral. Those stocks combine for about 12% of SLX's weight.

Trump Tariff Talk

“The Trump administration’s ongoing talks with Canada on tariffs related to steel and aluminum could also add to the oversupply of the commodity, the brokerage said,” according to Reuters. “A near-term deal with Canada remains unlikely, but odds are in favor of a deal being sorted out by early 2019, Credit Suisse said.”

Related: Why It’s Time to Be Cautious on Steel, Steel ETFs

The SPDR Metals & Mining ETF (XME) is another ETF that could be pinched by faltering steel equities. XME tries to reflect the performance of the S&P Metals & Mining Select Industry Index, which is designed to track the metals and mining segment of the S&P Total Market Index, a broad U.S. equity market index. However, unlike the traditional cap-weighted indexing methodology, XME follows a more equally weighted approach.

“Last week, Canada said it would impose new quotas and tariffs on imports of seven categories of steel to head off a potential rise in imports as overseas steelmakers shut out of the United States seek new customers,” according to Reuters.

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