Should you invest in steel stocks now?
If you are a person who keeps an eye on market movements every day, you may notice what happens to stocks of metal companies, I mean steel companies. Stocks of steel are in a boom now. Steel prices are the highest in the decade so as the stocks of the steel company.
Let’s check what is behind the rally in steel stocks.
The first and more important reason is the pandemic itself. The supply side is weak for the metal dues to the second and third waves of Covid 19. Still, there is a hike in the demand for construction, chemicals, automobiles etc. government policies of India, China and the USA also helped to increase the demand for steel. All these factors widen the gap between the demand and supply of steel. This makes a hike in the price of metal stocks.
Secondly, China has made a huge step to reduce carbon footprints in the country. China has shut down some of its inefficient plants but still, the demand in the country is increasing. This makes china one of the potential importers of steel in the international market.
Foreign institutional investors (FII) keeps on investing in steel stocks as they remain bullish for a long period of time. FIIs in the March quarter have increased their stake to 18.56% which was 16.87% in the previous quarter. All these factors play role in increasing the demand and price of steel stocks.
The upward trend in the steel stocks remains the same for at least two quarters. Vaccination is going across the globe and once there is a control on the pandemic, the supply constraint would be eased. There will be more production. The price pressure may reverse on the back of high production. All these will bring a downward pull to the stocks. For the coming two-quarters steel will be a strong suggestion from my side.