Time For Steel

Higher iron ore prices haven't been very kind to global steel producers as of late. Higher production costs have caused several major steel producers to warn on earnings for the second quarter. The latest was Steel Dynamics (NASDAQ: STLD), which said its second-quarter earnings per share would be about 22 cents less than what Wall Street is expecting. Overall, margins and gross profits for major steelmakers have not followed record steel prices higher.However, now may be the best time for investors to jump into the sector. Long term trends for steel demand are rosy as emerging markets continue to build out their infrastructure. Even in the developed world, steel demand is growing. The World Steel Association estimates that global finished steel consumption will rise 5.3% in 2011. Many analysts are bullish on the sector, citing that the long slump in steel prices is starting to bottom out. Morgan Stanley in a recent research note, said “We think [steel] market fundamentals will begin to turn up by the end of the summer, so any further weakness would be short-lived” and that a “ sector-wide recovery is coming closer.” In addition, many steel producers have begun raising prices for a variety of rolled steel products including rebar and I-beams. For investors, now may be the best time to add the sector to portfolio. Both the PowerShares Global Steel (NASDAQ: PSTL) and Market Vectors Steel ETF (NYSE: SLX) offer direct access to the sector and feature some of the world's biggest steel producers. Investors can also use the SPDR S&P Metals & Mining (NYSE: XME) which features a 31% weighting to steel.