How to Invest in Industrial Metals

How to invest in industrial metals: Coal and aluminum

Coal is perhaps best known as a fuel, but not all types of coal are the same — 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, and there is currently no substitute for the material. Steel recycling could blunt demand for coking coal in the future, but prices leaped in 2021 due to supply shortages.

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Prices for aluminum are well below the highs reached back in 2008, but are expected to move higher as the US rescinds Trump-era tariffs on imports of steel and aluminum from Japan and the European Union.

Those price gains may be tempered by the oversupply situation in China at a time when automobile manufacturing is slowing down in the country.

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How to invest in industrial metals: Chromium, molybdenum and tin

Chromium and molybdenum are also industrial metals. Like their 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. It is an integral component in stainless steel, which supports construction activity around the world because of its use in all sorts of infrastructure and machinery.

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Molybdenum is a commodity that is also 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.

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For its part, tin is primarily used to coat other metals due to its ability to retain a high polish and prevent corrosion. Tin is also an alloy metal used in soldering and the production of rare earths superconducting magnets

Because of its price rise and key uses, interest in tin investing is increasing.

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How to invest in industrial metals: Options for investors

There's a long-term need for industrial metals, and for savvy investors the space could provide opportunity. But investing in industrial metals is a little trickier than investing in precious metals like gold and silver.

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. Some are specific, such as the Barclays iPath Series B Bloomberg Tin Subindex Total Return ETN (ARCA:JJT) and the Barclays iPath Series B Bloomberg Aluminum Subindex Total Return ETN (ARCA:JJU), while others, such as the Barclays 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. They can invest more safely in larger, more stable companies, or instead put their money in smaller producers, developers or 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 before jumping into the market.