Are Chinese steel prices a prelude to commodity inflation?
Strong demand for steel is pushing up prices in China, which bodes well for the ETF VanEck Vectors Steel (SLX).
Rising steel prices are also a harbinger of inflation. As commodities like steel continue to rise, the general feeling is that commodities in general will experience the same price increases.
“The decision by Chinese steel mills to raise prices amid skyrocketing raw material costs has raised concerns about the risks of inflation in the world’s second-largest economy and the impact this could have on smaller manufacturers who do not. cannot pass on the higher costs, ”a South China Morning Post article noted.
“Commodity prices are above pre-pandemic levels in China, with the cost of iron-ore, one of the main ingredients used to make steel, reaching a record US $ 200 per tonne last week, ”the article adds.
SLX tries to mirror the performance of the NYSE Arca Steel Index, which tracks global companies involved in the steel industry. While more than a third of SLX’s lineup is allocated to US steel producers, the ETF has a strong global focus, including exposure to former US developed markets and emerging market steel companies.
SLX investors benefit from:
- Unique access to the steel industry: An industry supporting global industrialization.
- Pure game with global reach: Includes companies involved in various activities related to steel production.
- Convenient customization: Personalize the global exposure to raw materials with a targeted allocation to steel companies.
- Excellent performance: The fund is up more than 50% since the start of the year.
A commodity hedging option
Commodities can serve as a barometer for economic health. When the economy picks up speed, the demand for raw materials increases.
Another advantage of commodities is their ability to help protect against inflation. When the economy is booming, prices tend to rise, which translates into commodities.
ETF investors can use funds like SLX for exposure to specialized commodities. As consumer prices rise, exposure to steel can help act as a portfolio hedge.
“Steel prices have been climbing since February,” the South China Morning Post article said. “Prices rose 6.3% in April following gains of 6.9% in March and 7.6% the month before, according to calculations by the South China Morning Post based on the price index of the China’s domestic steel, released by the consulting firm Steel Home. “
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