Sector Focus: Metals, Mining Funds Cave In

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Metals and mining funds were dragged down this week on concern the recession may be deeper than previously expected. In contrast, gold and silver funds became safe havens.

As for commodities, aluminum fell 5% in the five trading days ending Thursday, May 14, while copper dropped 9.3%, lead slumped 5.4% and nickel declined 6.3%. Tin and zinc also decreased in value.

The worst-performing metals and mining fund for the period, PowerShares DB Base Metals Long ETN(BDG), indexed to metals prices, gave up 8.5% of its value.

Losing 7.6%, Market Vectors -- Steel Index Fund(SLX) ranks as the second-worst performer. Its holding of Cliffs Natural Resources(CLF) cratered 27% as the company slashed its dividend and announced a share dilution with an equity offering. AK Steel Holding(AKS) plunged 13%, saying weak demand from the U.S. auto industry may force it to idle its Kentucky steel plant and lay off 750 workers for the rest of the year.

The weekly reading of steel production at 1.02 million tons is 53% below the year-earlier level, with mills running at 42.9% of capacity. U.S. plate steel prices have fallen $10 in a week and $72 in four weeks to about $594 per short ton.

The largest American aluminum smelter, Alcoa(AA), a holding of the third-worst performing SPDR S&P Metals & Mining ETF(XME), declined 11.3%. The fund retreated 7.6%. Global oversupply of aluminum was made worse for Alcoa, with Chinese producers restarting 1.4 million metric tons of idled capacity last month.

Worst-Performing Metals and Mining Funds for the Week Ending Thursday Fund Ticker Rating Fund Type 1 Week Total Return PowerShares DB Base Metals Long ETN BDG U ETN -8.48% Market Vectors - Steel Index Fund SLX E+ ETF -7.58% SPDR S&P Metals & Mining ETF XME D- ETF -7.57% PowerShares DB Base Metals Double Long ETN BDD U ETN -6.13% ELEMENTS Linked to the MLCX Gold Total Return Index CDSUI U ETF -5.47% Vanguard Precious Metals and Mining Fund VGPMX D Open-End -5.42% IPATH Dow Jones AIG Nickel Total Return Sub Index ETN JJN E- ETN -5.36% iPath Dow Jones AIG Copper Total Return Sub Index ETN JJC E+ ETN -4.91% E-TRACS UBS Bloomberg CMCI Industrial Metals ETN UBM U ETN -4.35% PowerShares Global Steel Portfolio PSTL U ETF -3.73% Source: Bloomberg & TheStreet.com Ratings

The two bright spots this week were gold and silver, rising 1.7% and 1.5%, respectively, as stores of value were sought as the stock market slipped lower.