Steel ETFs Have Been Outperforming

Steel sector-related exchange traded funds are strengthening as the Russia-Ukraine war contributes to a shortage in pig iron used by U.S. steel companies.

Over the past three months, the VanEck Vectors Steel ETF (NYSEArca: SLX), the lone steel sector-specific ETF, increased 22.3%.

Pig iron, the main raw metal used in the production of steel, dwindled in supplies in the weeks after Russia’s invasion of Ukraine, the Wall Street Journal reports.

Russia and Ukraine are the world’s largest exporters of pig iron, while the U.S. steel industry is often the world’s biggest importer.

About two-thirds of 6 million metric tons of pig iron imported by the U.S. in 2021 were brought in from Russia and Ukraine combined, according to the U.S. Census Bureau. However, the conflict has brought Ukrainian shipments to a complete halt, and sanctions have caused many importers to stop orders from Russia, according to steel executives.

Consequently, steelmakers have turned to suppliers from Brazil, India, and elsewhere as the tightening supplies of scrap metal contributed to pig iron prices almost doubling.

“There is really a concern about the availability of materials,” Parth Jindal, director of JSW USA, a unit of India’s JSW Steel Ltd, told the WSJ. “The lack of pig iron and the lack of scrap in the U.S. has really pushed up prices.”

Since January, pig iron prices have jumped by 74% to $940 per metric ton, according to S&P Global Commodity Insights. Meanwhile, the spot market price for the industry benchmark hot-rolled coiled sheet steel has surged 48% since the start of March to $1,480 per ton, according to S&P Global price surveys.

“The rise in steel prices is related directly to the Russia and Ukraine war,” Philipp Englin, chief executive of World Steel Dynamics, a market consulting firm, told the WSJ.

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