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Must-know: The effect of geopolitical tensions on steel industry

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Geopolitical problems affecting steel consumption

After looking at the strong growth in the U.S. steel market (see Parts 5 and 6), we’re now going to examine how geopolitical tensions are affecting the steel industry.

The Middle East and the Commonwealth of Independent States, or the CIS, are two regions experiencing major political tensions. Iraq and Syria in the Middle East region, and the ongoing crisis in Ukraine, have dampened steel demand. It’s even expected that the Russian economy will grow at a slower pace this year.

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How far do the tensions reach?

The CIS and the Middle East account for less than 8% of global steel consumption. As such, the slowdown in these economies isn’t a big worry for global steel markets. The opposite is true with China, where a slowdown in steel consumption has led to increased exports.

None of the countries in the CIS or the Middle East are major steel exporters. Still, some of the steel companies listed in the United States are exposed to the crises in these regions.

Which companies are exposed? 

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Being a global player has its advantages and disadvantages. ArcelorMittal has seen its CIS business slow down as a result of the current crisis. The chart above shows the financial impact of Africa and the CIS region on ArcelorMittal. As you can see, this region has generated operating losses in four out of the last five quarters.

Other steel companies including Steel Dynamics, Inc. (STLD), AK Steel Holding Corporation (AKS), and Nucor Corporation (NUE) focus more on the U.S market. These companies should benefit from the strong steel demand in the U.S.

There is always a risk when you hold a single security in your portfolio. Consider investing in an exchange-traded fund with a diversified metals portfolio, such as the SPDR S&P Metals and Mining ETF (XME).

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