Steel ETF Bolstered by a Major Holding

Rio Tinto (RTP - commentary - Trade Now), one of the largest components in the Market Vectors Steel ETF (SLX - commentary - Trade Now), recently sold its U.S. packaging business to Wisconsin-based Bemis (BMS - commentary - Trade Now) and reaffirmed the strength of its steel business.

SLX has more than 10% of its portfolio allocated to RTP, whose second-quarter output numbers are due July 15. "We're selling everything we make, we've never been as busy," Rio Tinto Iron Ore spokesman Gervase Greene said, according to a Reuters report.

While Chinese steel mills have demanded a cut in ore prices that is greater than the cut demanded by rivals in Japan and Korea, the pressure has not slowed RTP. "Instead of buying under contract, they just choose to buy at whatever the prevailing rate is on the day. At the moment, that's about $82, so we're selling it at a higher price than if they had agreed so that's where it's at," Greene noted in the Reuters article. RTP expects to show in its next earnings report that its iron ore shipments have picked up.

Spot prices for iron ore are at four-month highs around $82.50 per ton delivered in China, and if the demand in emerging markets continues to increase, SLX investors will reap the rewards. In addition to the $1.2 billion sale of its U.S. packaging business, RTP is also eyeing a joint venture with rival BHP Billiton (BHP - commentary - Trade Now) valued at $58 billion.

At the time of publication, Dion had no positions in securities mentioned.

SLX's top 10 components also include Cia Vale do Rio Doce (VALE - commentary - Trade Now), Arcelor Mittal (MT - commentary - Trade Now), POSCO (PKX - commentary - Trade Now), Cia Siderurgica Nacional SA (SID - commentary - Trade Now), Nucor (NUE - commentary - Trade Now), Ternium (TX - commentary - Trade Now), Cliffs Natural Resources (CLF - commentary - Trade Now), Allegheny Technologies (ATI - commentary - Trade Now) and Mechel (MTL - commentary - Trade Now).

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Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.