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Investing in steel stocks

What to know before investing in this staple engineering and construction material.

There are over 3,500 grades of steel that serve different purposes, from cars and washing machines to construction projects and surgical scalpels. Steel is a major player in construction worldwide, but significant issues will face the industry in the coming years.

What are steel stocks?

Steel stocks are companies that mine and manufacture steel products. The top three steel producing countries in the world are China, India and Japan.
Steel is an alloy made of mostly iron and up to 2% of carbon. It’s mainly used in construction, such as building infrastructure and tools, and household items such as sewing needles and canned foods.

Why invest in steel stocks?

Steel is a trusted and versatile construction material and is beloved for its durability, flexibility and low cost. Steel stocks perform well when the economy is strong.
In the past decade, China has seen explosive growth and maintains a high steel demand. Other large infrastructure projects around the world also up the demand for steel products, leading to higher profits and returns. And as the economy flourishes, the need for new buildings and construction continues to fuel the steel industry.

What stocks are in the steel sector?

Steel stocks include companies that manufacture metal products as well as those that produce and recycle steel. See how the following stocks are performing, and view details like market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield.

What ETFs track the steel category?

A steel exchange-traded fund (ETF) holds securities that are connected to the steel industry. The only ETF that tracks steel is VanEck Vectors Steel ETF (SLX).

Risks of investing in steel

While steel currently plays a major part in our daily lives, there are specific risks involved in investing in steel and its uncertain future:

  • Fewer large steel mills. The costly investment and environmental concerns — which prompted government policies like the 1970 Clean Air Act — have suppressed the construction of new steel plants.
  • Steel alternatives. New building materials are gaining traction in new construction projects. For example, engineered timber is sustainable, a quicker, cleaner building material, and just as strong as steel.
  • Recycled steel. You can recycle steel continuously without compromising its strength. The greater availability of recycled steel can reduce the prices of steel stocks, potentially eliminating the need for steel production in the next 30 years.
  • Tariffs. Trade wars and tariffs can negatively affect steel stock prices. For example, the 2018 US tariffs against China imports, which were first imposed on steel and aluminum, are estimated to have cost US companies at least $1.7 trillion in stock prices.

How to buy steel stocks

If steel stocks are right for you, here’s a breakdown of how to get started.

1. Research stocks

Before you invest in steel stocks, evaluate the companies that produce steel or use it to make products. Examine their financial statements. Take a close look at their assets, liabilities, shareholder equity and other metrics found on their balance sheet. You can usually find this on the investor relations section of a company’s website.
You also may want to check whether the company has announced any plans to deal with present challenges such as production issues or dealing with potential trade tariffs. In addition, you can also look to see how a company sizes up against its competitors. By closely examining these companies, you can get a good sense of what may be a good investment.

2. Open a brokerage account

Before you begin making trades, you need to open a brokerage account. You can choose from plenty of online brokerage accounts, but they can differ vastly in terms of fees and tools. So make sure you compare your options.
If you’re new to investing, consider investment apps for beginners like Robinhood or SoFi. If you’re an experienced investor check out brokerages like TD Ameritrade or Vanguard which offer sophisticated research and analytical tools.

3. Purchase Stocks

Once you’ve opened and funded your brokerage account, you can begin buying stocks. Simply look up a stock by company name or ticker symbol. Then, decide the number of shares you want to buy and place your order.

Market projections for steel stocks

Global steel production volume is expected to rise to 2175 million tonnes by 2024, according to Research and Markets. Throughout this course, the industry is expected to expand at a compound annual growth rate (CAGR) of 4.50%
This growth is expected to be driven by factors such as the expansion of urban populations and increased spending on construction and infrastructure projects. China is expected to remain the largest producer of steel, partly driven by a boost in the production of automobiles and electrical appliances. However, price volatility could be a major challenge to steel stock investing in the coming years.

Compare trading platforms

You’ll need a brokerage account to invest in steel. Take a look at a few options below:

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Bottom line

The steel industry is a staple in the world’s industrial economy. Steel stocks can be profitable when the economy is booming, but keep your eye on how tariffs and developments in the steel industry affect stock prices.
Compare trading platforms to start investing in steel.

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