Steel
Steel is a volatile metal that is widely used in construction and manufacturing. This guide to steel trading covers the basics of the market, factors that influence prices, and different investment products, from futures and options to CFDs, ETFs, and shares. Our team have also ranked the best steel brokers:
Steel Brokers UK
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Established in 1989, CMC Markets is a respected broker listed on the London Stock Exchange and authorized by several tier-one regulators, including the FCA, ASIC and CIRO. More than 1 million traders from around the world have signed up with the multi-award winning brokerage.
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Founded in 1974, IG is part of IG Group Holdings Plc, a publicly traded (LSE: IGG) brokerage. The brand offers spread betting, CFD and forex trading across an almost unrivalled selection of 17,000+ markets, with a range of user-friendly platforms and investing apps. For 50 years, IG has maintained its position as an industry leader, excelling in all key areas for traders.
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Established in 2005 in Australia, FP Markets is an ASIC- and CySEC-regulated broker boasting an extensive suite of tradable assets. Its Standard and Raw accounts cater to traders at every level, while it packs a punch in the tooling department, from the MetaTrader suite and intuitive TradingView to actionable trading ideas from Trading Central and AutoChartist.
Steel Trading 101
Steel is a base metal that is actively traded on the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME).
Global steel production exceeds 1,600 million metric tonnes each year. The primary steel-producing countries are China (accounting for over 50%), followed by India, Japan and the US.
Unlike other commodities, steel is not a raw material that is mined or harvested, but rather an industrial alloy of iron ore, carbon and other elements. Steel is, therefore, a ferrous metal, produced through steelmaking processes (of which iron ore constitutes around 98%).
Due to its durable and robust properties, it is widely used in construction. As such, steel is largely traded in terms of industrial activity and can be used to take a view of the wider economy.
History
Steel production has existed for nearly 4,000 years. One of the most notable steels produced by early civilisations was the wootz steel of India, produced in crucibles in the 6th century BC.
Modern steel production wasn’t developed until 1855, whereby molten pig iron was used as a base. This enabled producers to make large quantities of steel at a low cost.
In 1952, the basic oxygen furnace (BOF) steelmaking process was developed in Europe. BOF processes allow for low-impurity steel to be produced in a fraction of the time compared to previous metals.
Today, BOF is the most popular form of modern steelmaking, followed by electric arc furnace (EHF) and open hearth furnace (OHF) steelmaking.
Steel Chart
Top Steel-Producing Countries
| Country | Volume (Million Tonnes) |
|---|---|
| China | 1,013.0 |
| India | 124.7 |
| Japan | 89.2 |
| United States | 80.7 |
| Russia | 71.5 |
| South Korea | 65.9 |
| Germany | 36.8 |
| Turkey | 35.1 |
| Brazil | 34.0 |
| Iran | 30.6 |
How To Trade Steel
Investors can gain exposure to the steel markets through several trading vehicles:
- Futures: Steel futures allow you to buy or sell steel for a pre-determined price in the future. Steel futures are available on several leading exchanges. For example, the London Metal Exchange (LME) offers the trading of steel scrap, rebar and hot-rolled coil (HRC) steel via 7 futures contracts, including the LME Steel HRC FOB China.
- Options: Options contracts give traders the right to buy or sell steel at a pre-determined date and price. Traders are not obligated to carry out these contracts and therefore can be used to limit risk exposure. Steel options are available on the New York Mercantile Exchange (NYMEX).
- Stocks: Traders can invest in the shares of companies that mine iron and produce steel, including in the USA, Europe, and Dubai. Tata Steel, ArcelorMittal SA, Nippon Steel Corp, Nucor Corp and Baoshan Iron & Steel Co are all popular options.
- Exchange Traded Funds (ETFs): Steel ETFs hold assets that are engaged with the steel industry and are traded like shares on exchanges. The most popular steel ETF is the VanEck Steel ETF (SLX).
- Contracts For Difference (CFDs): CFDs are derivative instruments where traders can speculate on the price of steel or the shares of iron ore mining companies. For example, City Index offers an iron ore CFD, whilst CMC Markets offers CFDs on a range of steel companies.
Factors That Influence Steel Prices
Infrastructure Demand
Steel is commonly used in infrastructure and construction projects such as the UK’s High-Speed Rail (HS2). Larger economies looking to start major projects will boost steel demand and raise prices.
During the Covid-19 pandemic of 2020, national lockdowns led to the halt of many infrastructure projects, reducing demand for steel and causing prices to drop.
In 2021, steel prices began to rise again as projects restarted. The US Midwest HRC steel index, for example, increased from under $500 in July 2020 to $1,725 in September 2021.
Chinese Economy
China is the largest steel producer in the world, accounting for over 50% of steel produced per year. In 2021, China produced 1,032.8 million metric tonnes of crude steel. As such, changes to the Chinese economy will have a large impact on global steel production and prices.
Major steel-producing firms from China include China Baowu Steel Group, Ansteel Group, Jiangsu Shagang, HBIS Group, Jianglong Steel, and Shougang, all occupying spots in the top 10 largest steel producers by volume.
Transportation Sector Demand
Stronger global economies often create more demand for automobiles, ships and trains. The performance of the transportation sector is also a good indicator of the overall economy, which drives the price of steel.
Production & Energy Costs
The production of steel requires iron ore, energy, and scrap metal, supplied largely by China, India and Brazil.
Higher prices in these inputs will cause a rise in steel prices and vice versa. Availability may also depend on the demand within those countries.
Technological Advances
Any developments of steel-substitute materials such as pultruded fibre-reinforced plastic (FRP) could compete with steel, causing demand to fall.
These composites offer corrosion-resistant qualities and are tolerant to high impact.
Comparing Steel Brokers
- Assets: Find a broker that offers a range of investment vehicles on primary exchanges such as the LME. IG Index, for example, lets you trade CFDs on steel industry firms such as Chongqing Iron and Steel Company Limited.
- Trading platform: Most steel brokers should offer a robust trading platform with access to real-time market quotes and detailed charting tools, such as MetaTrader 4 (MT4) or cTrader. Some steel brokers also offer specialised proprietary platforms.
- Demo account: We recommend taking advantage of demo accounts available at the top steel brokers. These allow you to practise trading steel-related assets on the platforms using virtual money.
- Fee structure: Compare the broker’s fees, including commissions on CFDs, spreads, and overnight charges. For example, eToro charges 2 cents per unit on US-listed stock CFDs, including United States Steel Corp.
- Regulation: Brokers in the UK are regulated by the Financial Conduct Authority (FCA). The FCA imposes strict rules to protect customers when trading online. These include segregating client funds, negative balance protection, and compensation schemes. Top-ranked firms that facilitate steel trading include Plus500 and IG Index.
Benefits Of Trading Steel
- Speculate on the construction and manufacturing sectors: Investors can speculate on large infrastructure projects and take advantage of increased demand for manufactured goods, which are good indicators of economic growth.
- Portfolio diversification: Trading steel allows you to mitigate your exposure to risk by investing in products other than stocks, such as steel futures or iron ore companies.
- Emerging market growth: Well-performing economies and developing countries could see an increase in demand for housing, offices and large infrastructure.
Risks Of Trading Steel
- Market volatility: Price moves in the steel markets can be dramatic, due to performance cycles in global economies. Traders must have robust risk management tools in place to mitigate their exposure.
- Chinese economy: Steel is mainly produced in China, so any significant economic downturns in the country could see domestic demand for steel decrease.
- Strength of the US dollar: If the US dollar strengthens, it can negatively impact steel companies and traders could see a drop in their profits.
- Political risks: New trade policies or decisions to revoke infrastructure projects could negatively impact steel prices and can lead to losses.
Steel Trading Hours
Market hours vary depending on the type of steel market. Brokers that facilitate the trading of steel-producing stocks will have trading hours in line with the relevant exchange.
Steel trading hours via futures on the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) are as follows:
- LME: Monday to Friday 1:00 am – 7:00 pm (London Time)
- CME: Sunday to Friday 6:00 pm – 5:00 pm (Eastern Time)
Bottom Line On Steel Brokers
Steel trading allows investors to speculate on the manufacturing sector, including large-scale building projects in emerging sectors. Traders can diversify their portfolios through steel futures, ETFs, CFDs and options, as well as shares in steel-based companies. To get started, check out our list of brokers offering steel trading platforms.
FAQ
Can You Trade Steel In The UK?
Steel trading is accessible through CFDs, futures, options, stocks, and ETFs in the UK. Traders can open an account with an online broker, make a deposit, and place trades on the firm’s investing platform.
Is International Steel Trading Available In The UK?
UK investors can speculate on the shares of some of the world’s largest Chinese and Japanese steel-producing firms including Tata Steel, JFE Steel, and China Baowu Group, among other global companies.
What Is The Best Steel Broker?
Several leading brokers offer steel trading products, including Plus 500, IG Index and CMC Markets. Make sure to compare fees, trading products, platforms, tools, and FCA regulatory status.
What Are The Market Hours For Steel Trading?
Steel futures contracts can be traded on the LME between 1:00 am and 7:00 pm (London Time), Monday to Friday. Some online brokers may offer specific trading hours for other markets such as steel company shares.
Article Sources
Crude steel production global totals (World Steel Association)
The world’s largest 15 crude steel producers (Statista)