Steel ETFs' Surge May Not Last After Trump's Tariffs
Steel and metals ETFs rocketed higher Monday, but the action might not last.
Exchange-traded funds that hold shares of steel and aluminum companies surged Monday after President Donald Trump announced that he would impose 25% tariffs on imports of the two metals.
The VanEck Steel ETF (SLX) and the SPDR S&P Metals & Mining ETF (XME) gained 3% and 4%, respectively, on the news.
Big gains in shares of American steel producers, like Nucor Corp. (NUE), Cleveland-Cliffs Inc. (CLF) and U.S. Steel Corp. (X) were the biggest drivers of the $75 million SLX on Monday—but even foreign steel companies, like Ternium Sa (TX) and Posco Holdings Inc. (PKX), contributed to the upside action.
The across-the-board rally in steel stocks is curious. It makes sense that domestic steel companies would rise on news that their foreign competitors would get hit with big new tariffs. But why would stocks of those same foreign rivals increase as well?
A bit of bargain hunting across the industry could be the reason for the jump. Steel stocks in general have been struggling lately; good news for one group of stocks in the industry could have been enough to spark a rally across the industry.
That said, if Trump follows through with his tariffs, investors might become more discerning, which has implications for SLX and other metals-focused exchange-traded funds.
The ETF’s geographical focus is split between the U.S. and the rest of the world. Any upside in shares of US-focused steel companies could be offset by losses in stocks of foreign steel firms.
Case in point: on Monday, as shares of other steel stocks surged, India-based Tata Steel was trading down by 3%.
While I’m a strong advocate for ETFs, this is a situation where investors who want more direct exposure to American steel companies specifically, might be better off buying a basket of individual stocks.
Metals ETFs to Be Buffeted by Competing Forces
As far as I’m aware, there aren’t any ETFs that exclusively hold US steel companies (nor are there any ETFs that focus on aluminum companies, US-based or otherwise).
There are, however, broader US-focused metals ETFs, like the aforementioned XME, which has $1.7 billion in AUM.
XME tracks an equal-weighted basket of US metals and mining companies. But its broader mandate means that it holds stocks of much more than just steel firms, including everything from gold miners to coal producers.
Still, the ETF jumped nearly 4% Monday, underlying the idea that Trump’s tariffs boosted sentiment across the whole metals and mining industry.
Again, don’t count on the across-the-board rally continuing (at least based on the Trump tariff news). As investors start separating the winners from the losers, metals ETFs will start to feel the push and pull of competing forces.
