Commodity trading: Here’s what you need to know about trading steel
Considered to be one of the most important raw materials used in building and construction, steel is a metal alloy that is an integral trading commodity. The expanse use of steel as a building material which accounts for approximately 20% of all steel usage worldwide and electronic components has created a global exhaustive demand for this metal, contributing to soaring steel trade prices for greater margins of profits for shrewd investors.
Singapore has become the main global hub for trading in iron ore, which is the main ingredient in steel. Although there is a positive correlation to the prices of steel to the economic growth of a nation, steel prices remains subject to unsteady fluctuations and volatility. Higher demand will translate into a higher price for steel futures.
One of the easiest ways to trade steel is with steel futures contracts which are traded on the New York Mercantile Exchange (NYMEX) and the London Metal Exchange (LME). Several prominent trading platforms in Singapore to start trading in hard metals include Plus500, Oanda and IE but to name a few. Due to the oversupply of steel in 2015, prices of steel plummeted causing a surge in short futures options. In 2016, steel prices recovered largely due to economic controls in place which has stabilized the price for steel futures to reflect a healthy growth.
Another way for investors to break through the steel market is through Exchange Traded Funds (ETF). One of the most prominent companies that operates in the steel industry is VanEck Vectors Steel ETF which trades on the NYSE and is involved in a variety of activities related to hard metal production.
Besides that, investors can get involved in steel trading by investing in equities of companies that has exposure to steel. Some companies trading in Steel in the SGX include CosmoSteel Holdings Limited, HupSteel Limited and YLS Steel Pte Ltd. Investors can purchase stock of these companies in the production of steel as an alternative strategy. As profitability of this resource will generally rise as steel prices increase, this approach provides a less complicated strategy than a futures or ETF approach. These public listed steel companies delve into various aspects of steel from production, operation and extraction. The risk to this approach is that apart from exposure to industry volatility, investors are also exposed to internal workings of the company including business model, future expansion and management. Collectively, investments are managed by professional fund managers to meet the fund’s financial goals.