Industrial metals such as aluminum, tin and metallurgical coal are key for much of the technology and infrastructure used in our daily lives. From steel car parts and building frames, to aluminum aircraft frames, to everyday appliances, industrial metals are everywhere.
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, driving prices down. However, analysts say that rising demand from India and China could push coal prices up long term.
Meanwhile, prices for aluminum are set to move higher on the back of a forecasted deficit for 2015. “The world, excluding China, will continue to be in short supply due to shut downs, production curtailments and strong demand in South America and North America,” one aluminum market participant told Reuters in a survey.
Chromium, molybdenum and vanadium all improve the properties of steel, but can have other applications as well. Molybdenum is used in steelmaking as it has good tolerance for high-heat and high-stress situations, but it is also used by oil companies as a catalyst to remove sulfur from crude. Vanadium is used to strengthen steel, but is also used in vanadium-redox batteries, and some see vanadium demand increasing due to this application in energy storage.
To be sure, there’s a long term need for industrial metals, and for savvy investors, the space could provide plenty of opportunity.
Investing in industrial metals
Some industrial metals, such as aluminum, are traded on the London Metal Exchange, as well as others, and interested investors can set up an account with a broker who handles futures trading contracts in order to trade contracts for aluminum.
Investors can also buy Exchange Traded Funds (ETFs) that track industrial and base metal securities. Some are focused on specific commodities, such as the iPath Bloomberg Aluminum Subindex Total Return SM IndexETN (NYSEARCA:JJU) or the iPath Pure Beta Aluminum ETN (NYSEARCA:FOIL). Others are more diversified, such as the iPath Bloomberg Industrial Metals Total Return Sub-Index ETN (NYSEARCA:JJM).
Finally, investors can buy shares in companies that mine or produce industrial metals. For example, some larger aluminum mining companies include Alcoa (NYSE:AA) and Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO), but some investors may also be interested in smaller producers and developers or even junior industrial metals exploration companies, depending on their risk tolerance and knowledge of the industry.