Wondering how to start investing in base metals? We can help you get started with this brief overview of the space.
While precious metals like gold and silver tend to get the most attention from investors, they’re not the only options out there. Investing in base metals can also be a profitable endeavor for those interested in an arena that is a little different.
But what exactly are base metals? Generally they are more abundant in nature than precious metals, meaning that they are priced much more cheaply. They tend to be used for commercial and industrial purposes, and oxidize or corrode relatively easily when they are exposed to air or moisture. Copper is one of the most common base metals.
All base metals are affected by diverse factors, though in some cases the markets for different base metals are linked. Having a grasp of those factors and the ways the various base metals interact with each other is essential for investors wanting to gain exposure to the space. With that in mind, we’ve put together a brief overview of a number of different base metals and how to invest in them.
Investing in base metals: Copper
Copper is perhaps the best-known base metal, and it’s not hard to see why. It 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 health of the global economy — some people even refer to the red metal as “Dr. Copper.”
Copper prices fared well in 2017, breaking $7,000 per tonne for the first time in several years. In 2018, that upward momentum has not continued — the red metal has oscillated so far, with the general trend being downward. Still, many CEOs are bullish and some analysts are “cautiously optimistic” on copper.
Copper is relatively easy to invest in. Those interested in gaining exposure to the metal 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 companies also have a slew of options. As with many metals, the key is to do enough research before jumping in.
Investing in base metals: Zinc and lead
While copper is one of the most popular base metals, zinc has definitely been getting some attention lately. While the zinc price hasn’t performed well so far this year, many experts remain optimistic about its prospects. 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.
Any discussion of zinc would be incomplete without a mention of lead. While they have different uses, they 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 zinc and lead can also look at futures, exchange-traded products like ETFs or stocks. Since the metals are often mined in conjunction with each other or with copper, it is difficult to find pure-play zinc and lead companies.
Investing in base metals: Other options
Iron ore in particular has been suffering lately — it’s a key component of steel, and developments in China have traditionally been the key driver of global iron prices, given that it is the world’s largest producer, consumer and exporter of steel. Along with concerns about a slowdown in Chinese growth, ongoing and seemingly escalating global trade disputes have weighed on iron ore prices this year.
The nickel price is faring better, but its movement has been choppy in 2018. While some believe a price rise is coming, others think that choppiness will continue until new price drivers emerge. Some have suggested electric vehicle demand could be the shock the nickel market needs.
Nevertheless, some investors still believe that both of these metals could present opportunities for investors. After all, those who get in early during down markets can sometimes see incredible profits later on. Again, the key of course is to be informed and do adequate due diligence.
This is an updated version of an article originally published by the Investing News Network in 2017.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.