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How to Invest in Base Metals
Jan. 10, 2022 01:50PM PST
Wondering how to start investing in base metals? We can help you begin with this brief overview of the space.
While precious metals tend to get the most attention from investors, gold and silver are not the only profitable metals options available to investors. Investing in base metals can also be a lucrative endeavor for those interested in natural resource commodities.
More abundantly found in nature than any precious metal, base metals fetch much lower prices in the commodities market and have myriad commercial and industrial purposes.
All base metals are affected by diverse factors, though because they serve common industries there can be overlap. Knowledge of those factors is essential for investors wanting to gain exposure to the base metals sector.
With that in mind, here's a brief overview of how to invest in copper, nickel, zinc, lead and iron, which are some of the most common base metals. Read on to learn more about them.
How to invest in base metals: Copper
Copper is perhaps the best-known base metal, and it’s not hard to see why. This industrial metal has a wide range of applications and is used in everything from wiring and plumbing to coinage and electronics.
Indeed, copper is so widely used that it’s considered a valuable indicator for the health of the global economy — earning the red metal the moniker “Dr. Copper.”
Over the past few years, the price of copper has faced highs and lows in light of ongoing trade tensions between China and the US, along with supply concerns. However, 2021 saw it reach an all-time high of above US$10,700 per tonne, and analysts are optimistic on copper looking forward.
Copper is relatively easy to invest in. Those interested in gaining exposure can invest in copper futures, copper exchange-traded funds (ETFs) and, of course, copper stocks. Many major miners are involved in the copper space, but those interested in smaller copper-focused companies also have a slew of options. As with many metals investments, it’s important to do your due diligence before jumping in.
How to invest in base metals: Zinc and lead
While copper is one of the most popular base metals, zinc has definitely been getting some attention lately. Though the zinc price has faced a rough few years, it’s begun to make a gradual comeback, with many experts remaining positive about its prospects heading into the future.
Their positivity largely stems from supply-side factors — over the last several years, a number of large zinc mines have closed, and the consensus is that not enough new mines have come online to replace that output. The COVID-19 pandemic has led to further tightening on the supply side.
Any discussion of zinc would be incomplete without a mention of the lead outlook.
While they have different uses, the metals tend to be found together, often in conjunction with copper. For that reason, zinc market activity can affect lead market activity (and vice versa). As with copper, those looking to invest in lead can look at futures, stocks and exchange-traded products like ETFs. Since the metals are often mined in conjunction with each other or with copper, it is difficult to find pure-play zinc- and lead-mining companies.
How to invest in base metals: Iron and nickel
Iron ore and nickel are the two final base metals that investors may want to consider. Both are essential in the world today and are increasingly getting investor attention.
Iron ore is an important component of steel, and developments in China have traditionally been a key driver of global iron prices, because it is the world’s largest producer, consumer and exporter of steel. While there are worries about a slowdown in Chinese growth, supply concerns have helped support prices for the commodity.
Nickel prices have had a choppy trading pattern in the past few years, marked by steep plunges and gradual recoveries. While some believe a price rise is coming, others think choppiness will continue until new price drivers emerge. Some have suggested that demand for electric vehicles could be the shock the nickel market needs.
Both of these metals could present opportunities for investors, and again there are myriad ways to enter the space. To get exposure, there are base metals-focused ETFs, as well as nickel futures and iron futures. And of course there are options for investments in mining stocks.
This is an updated version of an article originally published by the Investing News Network in 2017.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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