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Invest in Commodities through Steel Companies

Although futures contracts are available for all commodities from crude oil to coffee, there’s no underlying futures contract for steel. However, a number of exchanges have expressed interest in developing a steel futures contract, so keep an eye out for such a development.

For now, the best way to get exposure to steel is to invest in companies that produce steel, specifically globally integrated steel companies. The companies below are global leaders in the steel industry.

Company Production (Million Metric Tons)
ArcelorMittal (worldwide) 78
Baosteel (China) 31
POSCO (South Korea) 30
Nippon Steel (Japan) 27
JFE Group (Japan) 27
Jiangsu Shagang (China) 21
Tata Steel (India) 20
Ansteel (China) 20
Severstal (Russia) 17
Evraz (Russia) 15

Source: International Iron and Steel Institute

The companies in Table 16-2 are the world leaders in the industry. However, not all are available for investment. Some of them are private, and others trade on foreign exchanges that don’t issue American Depository Receipts (ADRs). The following list represents good investments that not only are the best-run companies, but also display the greatest potential for future market dominance:

  • Arcelor-Mittal (NYSE: MT): Arcelor-Mittal resulted when the Indian company Mittal acquired the European Arcelor in 2006, in one of the biggest consolidation plays the industry has ever seen. Combining the number one and number two steel producers has created a dominant leader with output, almost double that of its nearest competitor. If you’re looking for broad exposure to the steel industry, you can’t go wrong with Arcelor-Mittal.

  • Gerdau (NYSE: GGB): Gerdau is a Brazilian vertically integrated steel producer with operations across several countries. Gerdau is a dominant player in the long steel category, with mills in Brazil, Argentina, Mexico, Colombia, and the United States. It brought in a net income of more than $800 million in 2009, so you can remain confident that this company will generate long-term value for its shareholders.

  • Nucor Corp. (NYSE: NUE): The American steel industry remains a robust competitor on the global stage, despite the dominance of Asian (particularly Chinese) companies. Nucor operates almost exclusively in the United States; if you’re interested in getting exposure to the American steel market, consider investing in it.

    Nucor is also one of the only companies to operate minimills domestically, which many argue are more cost efficient than the traditional blast furnaces.

  • U.S. Steel (NYSE: X): U.S. Steel, which was formed as a result of the consolidation of Andrew Carnegie’s steel holdings in the early 20th century, is one of the oldest and largest steel companies in the world. By itself, U.S. Steel represents the whole history of the modern steel industry. At one point, it was the largest producer of steel in the world.

    Although it has scaled down its operations, it’s still a significant player in the industry today. U.S. Steel is involved in all aspects of the steel-making process, from iron ore mining and processing to the marketing of finished products.

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