Steel trading can be an attractive option for retail investors. With a huge number of companies involved in steel manufacturing and trading on numerous exchanges, traders can choose from a wide range of methods to invest in or speculate on steel, from leveraged CFDs to long-term futures contracts or ETFs. This guide will explain how to start steel trading, from the available instruments and potential strategies to the pros, cons and anything else a trader should know. Use our list of the top steel brokers to get started:
Best Steel Brokers
IG-US offer spread betting, CFD and Forex trading across a range of markets. They are FCA regulated, boast a great trading app and have over 47 year track record of excellence.
Forex trading involves risk. Losses can exceed deposits
Steel Trading Basics
What Is Steel?
Steel is one of the most important metals in the world. Steel and alloys such as stainless steel form key parts of objects and infrastructure that we use daily, from vehicles and tools to buildings and bridges. In 2022, the steel market was valued at over 1.2 trillion USD (Expert Market Research).
When trading steel, you need to consider the different types as well as where it is produced. For instance, three common types of steel you can trade on an exchange include rebar (reinforcing bar), scrap and HRC (hot-rolled coil). This is an important distinction as the prices will vary depending on both the type of steel traders invest in and the location.
In February 2023, the price of rebar steel in Turkey listed on the London Metal Exchange (LME) was $261 higher than the price of scrap steel in Turkey for example. During the same time frame, the prices of China HRC, Northwest Europe HRC and North America HRC on the LME were $640, $801 and $740, respectively.
History Of Steel Trading
Steel has been a key part of infrastructure projects for millennia, though it was not produced in large amounts until the Industrial Revolution in the 19th century. During this time, new technologies and manufacturing methods were discovered, which allowed countries around the world to produce steel on a much greater scale than before.
The global steel industry grew quickly in the United States of America with the company U.S. Steel launched in 1901. It was formed from a merger between a series of manufacturing and steelmaking companies and was headed by J.P. Morgan. It became one of the world’s largest steel manufacturing and trading companies with an estimated market cap of $4.8 billion. Alongside U.S. Steel, there were many state-owned steelmaking companies in other countries such as Russia, China, Japan, South Korea and across Europe.
However, it was not until the 21st century that steel futures were offered on exchanges to traders. The Dubai Gold and Commodities Exchange was the first to begin offering steel futures in 2007. The Chicago Mercantile Exchange (CME) followed suit the next year and then in 2009 the Shanghai Futures Exchange also started offering steel contracts.
Live Price Chart
Steel Trading Vehicles
- Steel Futures – a popular choice for professional traders as well as industry actors who often use these derivatives for hedging purposes. A futures contract is an agreement to complete a transaction for an agreed amount of the commodity at a specified price on the date of contract expiry. The capital requirement for futures contracts tends to price retail traders out.
- Steel Options – Similar to a futures contract, but the contract buyer is not obliged to purchase the steel on contract expiry. Instead, if you are in a losing position at the deadline, you can let the option expire without triggering, and therefore the only loss is the premium paid to open the contract.
- Steel CFDs – Contracts for difference (CFDs) are derivatives offered by many online brokers and widely available to retail traders. CFDs are a straightforward agreement between broker and trader that one side will pay the other the difference between the asset’s price at the beginning and the end of the contract, and are particularly popular among retail traders who value their low capital requirements and the opportunity to trade with leverage.
- Spread Betting – Another vehicle in the retail trading market, spread betting works in a similar way to CFDs with traders betting that the spread of an asset’s price will move past the strike price determined at the beginning of the contract. Traders can open leveraged positions with spread betting, and in some countries profit margins from spread betting are tax-free.
Another way to gain exposure to steel is by investing in companies that produce or sell the commodity. This includes manufacturing, steelmaking and trading companies from around the world, for example, Rio Tinto and Vale.
You should be aware that the stock and share prices for these companies can also be impacted by factors unrelated to steel, such as business plans and earnings forecasts as well as other metals they may work with.
It is possible to find international steel trading and making companies and businesses in numerous countries. For instance, JSW Steel, Tata Steel and Jindal from New Delhi, India, United Iron and Steel and Dana Steel of Dubai, UAE, 701 Champion Steel in Qatar and the Japanese Nippon Steel.
For many of these companies, you have the option to follow the price history graph for their stocks on websites such as TradingView.
An exchange-traded fund, or ETF, is a single instrument made up of a number of different stocks, commodities and other assets. As the name suggests, these are funds that can be traded on exchanges. One prime example is the VanEck Steel ETF which is made up of 25 holdings such as Vale, Rio Tinto and Tenaris.
Generally, ETFs may be better suited for longer-term investments or as a hedging option as they tend to be less volatile than other steel instruments. Take the VanEck Steel ETF for instance. If one or two stocks drop drastically in value while all others stay around the same, the overall value of the ETF will not be greatly impacted, protecting you against volatility in certain assets.
For the same reason, it might be more difficult to make large short-term gains when investing in a steel ETF, though you may be able to trade CFDs or similar leveraged products on an ETF’s price movements.
What Influences The Price Of Steel?
Iron & Coal
Iron ore and coking coal are two key ingredients in the production of steel. On average, one tonne of steel requires 1.4 tonnes of iron ore and 0.8 tonnes of coking coal, so these two commodities have a huge impact on the price of steel.
Shortages in either can mean production of steel decreases, causing supply to reduce and price to increase. In 2008, when iron ore and premium hard coking coal jumped to over 160 USD per tonne and 400 USD per tonne respectively, the price of Chinese steel also grew. During the year, it reached over 800 USD per tonne, the highest it had been in over five years.
Changes to the steel supply chain can have a large impact on the metal’s price. If demand stays the same but the amount of steel being produced and exported decreases, then the value of steel will increase. This was demonstrated with the end of lockdowns due to the COVID-19 pandemic.
During the pandemic, steelmaking was greatly reduced as countries around the world locked down. Towards the end of the pandemic when countries started to come out of lockdowns, infrastructure projects were planned to help get economies going again. This led to soaring demand for steel and therefore an increase in price. Between August 2020 and August 2021, the price of HRC steel increased by over 430%.
China accounts for around 50% of the global demand for steel. This is in addition to producing approximately 53% of global steel as published by the Statista Research Department.
These two factors together demonstrate the scale of China’s influence on the steel market.
Steelmaking is an energy-intensive process that uses either coal to fuel a blast furnace or electricity to power an arc furnace, which are the two main types of furnaces used to produce steel.
During 2022 when energy prices soared, the steelmaking and trading industry was greatly impacted, especially in countries such as the UK. Because of this surge, many steelmaking companies had to halt operations to keep costs down. This led to steel prices in the UK increasing by over 300% between January and April that year.
Pros Of Trading Steel
- Highly volatile asset
- Leveraged trading available
- Numerous steel trading strategies
- Many exchanges and types of steel you can trade on
- Free online resources with industry outlooks, production overviews and trading economics
Cons Of Trading Steel
- Limited brokers offer steel trading
- Can be a difficult asset to trade with many unpredictable factors impacting the price of steel
- High volatility leads to heightened risk
Steel Trading Strategies
A steel trend trading strategy is based on the idea of identifying and following trends to capitalize on price action. This involves using technical indicators to determine trends and the strength of trends, and to forecast potential reversals.
A trend trader would use this information to plan and execute trades – for instance, opening a long CFD when there is a strong upward trend and exiting the position to generate a profit once the trend strength begins to decrease.
An alternative to trend trading is identifying points where the price is more likely to change direction. Often, this involves using support and resistance lines, which generate an expected price range using past performance. Support lines are the lower band and resistance lines are the upper band.
To trade steel on this strategy, you would open positions assuming that the price trend will weaken and swap direction as it reaches one of these two lines. If the price is approaching a resistance line, you would open a short CFD position on steel, for example. Then once the price begins to decrease toward a support line, you would close the contract.
One way to trade on the price of steel is by monitoring news and announcements. Prices of steel instruments can be greatly influenced by fundamental factors alongside technical aspects. Examples include production forecasts and changes to imports and exports.
To help you have success with a fundamental steel trading strategy, it is best that you subscribe to news sites, publications and commodities analysts on social media. This way, you can stay up to date and make trades in anticipation or in reaction to industry news.
How To Start Trading Steel
Your first step is to choose the steel instrument that you want to trade with. Be sure to take the time to evaluate the different options so you can find which works best for you. To start with, consider your risk tolerance and see which instruments you feel best suit your trading style.
For instance, if you prefer short-term trades and you have a high-risk appetite, trading on leverage with CFDs could be a viable choice. Alternatively, if you prefer lower-risk instruments, ETFs may be better.
Next, you will need to find a broker that offers the steel trading instruments that you are interested in. When choosing a steel trading broker, review all the aspects that impact your overall trading experience. This includes the trading platform, fees, account types and regulatory status.
It is also useful where possible to practice trading steel in a risk-free way on a demo account, especially if you are a novice to trading steel or plan to try out a new strategy.
The three aforementioned strategies are a good place to start in your steel trading, but there are many approaches to consider. It is worthwhile taking the time to learn the available strategies and find ones that suit your financial goals and risk tolerance the best.
Trading steel can be a high-risk activity due to the asset’s volatility, so good risk management practices are vital. Popular methods include setting stop loss and take profit orders when placing a trade.
Another way to mitigate risk is by hedging – for instance, opening an options contract in the opposite direction to your futures or CFD position. This way, your options contract would reduce the magnitude of the loss from a futures or CFD contract if they go poorly.
Educational Resources & Other Tools
Ensure you have sufficient knowledge of steel trading and your chosen strategy before investing in a live account. You can find useful resources online such as guides, eBooks, tutorial videos and training classes. Note that while this is useful for beginners, seasoned traders moving to steel will also benefit from learning about steel production and trading dynamics, including the different types such as rebar and scrap steel.
Other tools to consider include using expert advisors (EAs) and copy trading. EAs are trading robots that identify suitable trading opportunities by analyzing price data and will then open, monitor and close positions automatically. Copy trading works similarly, but in this instance, your trades mirror those of an experienced trader.
Steel Trading Times
The steel trading hours depend on what you are trading and who you are trading with. For instance, steel futures and options contracts with the CME on the Globex are open between 5 PM Sunday until 4 PM Thursday (CT) with an hour break each day starting at 4 PM. Whereas, all steel futures contracts with LME can be traded between 1 AM and 7 PM London time every day.
As steel is traded around the world, it is possible to find an exchange with trading hours that suit your time zone.
Final Word On Steel Trading
The price of steel can be impacted by many fundamental factors, and fluctuations are regular and can be significant, representing an attractive opportunity for online traders. Whether you want to trade on a high-frequency and short-term basis or are interested in a longer-term investment, steel is a viable metal worth considering. The massive price swings in recent years also show how steel trading instruments can be used to generate large profits.
Use our ranking of the best steel brokers to start trading.
What Impacts The Price Of Steel?
The price of steel can be affected by numerous factors. Key examples that you should consider when trading steel online include impacts on the supply chain, availability of iron and coal, fluctuations in energy prices and changes in steel demand, particularly in China.
How Can I Plan A Strategy For Steel Trading?
You can strategize your steel trading using online platforms such as TradingView. This website allows you to see what a particular steel company’s share price is trading at and then conduct technical analysis using a range of indicators. It is a good resource for finding ideas on different strategies you could use or forecasts from other users in the community.
What Is U.S. Steel Trading At Today?
To keep up to date with the price of U.S. Steel, check an information site such as MarketWatch or WSJ Markets. If you are interested in trading on U.S. Steel, it may be worthwhile setting up share price alerts so you can be notified when the stock reaches a certain value.
What Is The Best Steel Trading Business To Invest In?
There are many international steel trading companies that you can choose from. While there is no definitive best, there may be one or two that are most suited to your trading style and preference. You can find steel companies in countries and exchanges around the world. For example, there are many steel-producing companies listed on the New York Stock Exchange, as well as in locations including Hong Kong, India, the Netherlands and other Euro countries.
How Can I Trade On The Price Of Steel?
Available instruments for trading on steel include derivatives such as futures contracts, options and CFDs. Alternatively, you can trade on the share price of global steelmaking and trading companies or ETFs related to the steel industry.