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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.
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.
Steel stocks include companies that manufacture metal products as well as those that produce and recycle steel. Select a company to learn more about what they do and how their stock performs, including market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield. While this list includes a selection of the most well-known and popular stocks, it doesn't include every stock available.
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).
Compare trading platforms
You’ll need a brokerage account to invest in steel. Take a look at a few options below:
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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