JJM - How to Start Industrial Metals Investing
Industrial metals such as metallurgical coal, aluminum and tin are key to much of the technology and infrastructure used in our daily lives. From aircraft frames to everyday appliances, industrial metals are everywhere, and investing in the industrial metals sector is growing increasingly popular.
Metallurgical coal, or coking coal, is different from thermal coal, which is burned to produce electricity. Coking coal is a key component in the steelmaking process. There is no substitute for the material, although steel recycling could blunt demand for coking coal in the future.
There has been plenty of oversupply in both the thermal and metallurgical coal spaces as of late, and that has driven prices down. However, US President Donald Trump is pushing to reignite the US coal industry, and some market watchers believe a brighter future for coal could be coming.
Prices for aluminum look set to move higher on the back of growing demand and restrictions on output in China. An ongoing trade probe to investigate whether Chinese aluminum imports pose a threat to US national security could impact the market and prices moving forward.
Chromium and molybdenum are also industrial metals. Like base metal sibling nickel, they improve the properties of steel, but have other applications as well.
Chromium is one of the more durable metals available, and is an integral component in stainless steel, which is used in infrastructure and machinery and supports construction activity around the world.
Molybdenum is a commodity used in the steel industry as it has good tolerance for high-heat and high-stress situations, and it is used by oil companies as a catalyst to remove sulfur from crude.
To be sure, there’s a long-term need for industrial metals, and for savvy investors the space could provide plenty of opportunity.
Industrial metals investing options
While there are plenty of options for investing in precious metals like gold and silver, industrial metals investing is a little more challenging. It’s not common for investors to physically own industrial metals, and most market participants instead choose to invest in these metals via futures contracts. For example, aluminum, tin and molybdenum futures are all available to trade on the London Metal Exchange.
Investors can also buy exchange-traded products that track industrial metals, like ETFs or ETNs. Some are specific, such as the iPath Series B Bloomberg Tin Subindex Total Return ETN (ARCA:JJT) and the VanEck Vectors Coal ETF (ARCA:KOL), while others, like the iPath Bloomberg Industrial Metals Total Return Sub-index ETN (ARCA:JJM), are more diversified.
Finally, investors can buy shares of companies that mine or explore for industrial metals. Some investors feel safer investing in larger, more stable companies, while others prefer to put their money behind smaller producers, developers or even juniors. Doing due diligence is a key part of this type of industrial metals investing, and it is important for each investor to know their risk tolerance.
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.