Steel Trading: How to Get Started [+ Find Brokers by Country]

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Steel is a vital component used in many industries worldwide and traders have a variety of ways to speculate on its prce movements.

We’ll explain how to trade this vital alloy and where you can find a regulated, reputable brokers in United States.

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Reasons You Might Trade in Steel

Steel is used in production all over the world, so its demand is a great indicator of the strength of the manufacturing economy.  Manufacturing is an important part of the overall economy, so trading in steel is a way to express a bullish view on world GDP growth.

Some of the best specific reasons for trading in the metal include:

  1. Bet on Massive Infrastructure Programs
  2. Bet on Emerging Market Growth
  3. Bet on Transportation Demand

Bet on Massive Infrastructure Programs

The quantity of steel required to build bridges, railways, and airports dwarfs the amount required in other applications.

The United States has not invested in major infrastructure projects in decades. Should such infrastructure investments come to fruition, the price of steel could move significantly higher.

Similarly, as other developed economies replace their infrastructure, steel prices should benefit.

Steel girders of a building being constructed
Construction Pushes Up the Demand for Steel – Image by Jacek Dylag via Unsplash

Bet on Emerging Market Growth

The insatiable demand for infrastructure and building construction in emerging economies, especially in China, has been a vital component of steel demand.

Government stimulus measures in these economies could further buoy the market in coming years. Traders who are interested in participating in emerging market growth without trading in stock markets in those countries should consider trading in steel.

Bet on Transportation Demand

The global economy depends on transportation to support growth. Ships transport goods internationally, while trains and trucks send goods across countries. Similarly, individuals need cars and trucks to travel to work.

Pro-growth policies in industrial and emerging economies should boost demand for steel in transportation products.

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.

How Can I Trade in Steel?

Steel speculators have several ways to gain exposure in the commodity.

Shares of Steel Companies

There are many companies engaged in mining and processing iron ore or producing steel. While these companies are not pure-play investments in steel, the performance of their shares is generally correlated with the price of steel.

 Current PriceOverviewListingsFounded
Rio Tinto

UK metals company that mines, processes and markets mineral resources.New York (NYSE)
London (LSE)
Sydney (ASX)
1873
Vale SA
Vale SA Logo
Brazilian company engaged in the production and sale of iron ore and iron ore pallets for steelmaking. New York (NYSE)1942
BHP Billiton
BHP Logo
Australian company that acquires, develops and markets natural resources worldwide.New York (NYSE)1885
Cleveland-Cliffs Inc.
Cleveland-Cliffs Logo
US mining and natural resources company that produces and supplies iron ore.New York (NYSE)1846

Companies that produce steel include:

 Current PriceOverviewListingsFounded
United States Steel Corp
American integrated steel producerNew York (NYSE)1901
ArcelorMittal SA
Luxembourgish multinational steel manufacturing corporationNew York (NYSE)2006

Steel ETFs

These financial instruments trade as shares on exchanges in the same way that stocks do.

There is currently only one steel exchange-traded fund (ETF) that invests purely in companies that produce steel:

VanEck Vectors Steel ETF

There are several other ETFs that invest generally in industrial metals, including:

  • UBS ETRACS CMCI Industrial Metals Total Return ETN
  • SPDR S&P Metals & Mining ETF

Steel CFDs

One way to trade in steel is through the use of a Contract for Difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of steel production or iron ore mining company shares.

The value of a CFD is the difference between the price of the shares at the time of purchase and the current price.

Many regulated brokers offer CFDs on steel production companies and related commodities, however availability depends greatly on your location due to financial regulations.

If you want to trade steel, iron ore and other commodities, here’s a list of regulated options available in to consider.

IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 71.00%-89.00% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Steel Futures

The New York Mercantile Exchange (NYMEX), which is part of the Chicago Mercantile Exchange (CME), offers a contract on US Midwest Domestic Hot-Rolled Coil Steel that settles into 20 short tons of the metal.

The contract trades globally on the CME Globex electronic trading platform.

How Do Futures Work?

Steel futures contracts expire on the business day prior to the last Wednesday of the named contract month.  At expiration, the contracts are financially settled.

Trading in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

Steel Options on Futures

The NYMEX offers an options contract on steel futures.

How Do Options Work?

Options are also a derivative instrument that employs leverage to trade in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of steel futures rises above the strike price by an amount greater than the premium paid for the contract.

Therefore, options traders must be right about the size and timing of the move in steel futures to profit from their trades.

Steel options contracts expire on the business day prior to the last Wednesday of the named contract month. 

Find an options broker in your country.

Should I Trade in Steel?

Traders should consider the following four reasons for trading in steel.

Portfolio Diversification

Diversifying a portfolio may be the most compelling reason to trade in steel. Commodities such as steel provide traders with a way to mitigate the risk of having assets concentrated solely in stocks and bonds.

Speculating on Construction Demand

Steel trading is a way to bet on infrastructure and construction demand. If developed and emerging countries find themselves competing for steel to complete large-scale building projects, then steel prices should move much higher.

Housing Growth

Accelerating growth in both the emerging and developed world could create more demand for offices and housing, and steel prices could see a big boost.

Speculating on Manufacturing

Steel trading also offers a way to make a bet on a strong manufacturing sector. Strong global growth usually boosts demand for manufactured goods such as refrigerators, cars and washing machines. Traders optimistic about global growth can express this view with by trading in steel.

Risks of Trading Steel

Steel trading, however, also has risks that traders should consider:

  1. A significant slowdown in the Chinese economy could lessen internal demand for steel and flood international markets with a cheap supply of the metal.
  2. A slowdown in the global economy would probably lessen demand for automobiles and consumer durables.
  3. Changes in the political climate could negatively affect steel prices. If governments decide to scale down infrastructure plans, steel prices would likely suffer.
  4. If technological advances in composite materials make significant strides, then demand for steel would almost certainly decline.

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.

Further Reading

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