Industrial metals, including, but limited to tin, aluminum and metallurgical coal are vital to much of the technology and infrastructure we use daily. From everyday appliances to aircraft frames, industrial metals are deeply entrenched in our lives. This high demand of industrial metals makes them an increasingly popular investment option.
Finance professional, Maxim Bederov examines which metals make the best investments
Metallurgical coal, also known as coking coal, is not the same as thermal coal. When burned, thermal coal produces electricity. Coking coal, on the other hand is the main component in the steel-making process. This material cannot be substituted, however modern recycling practices could lessen future demands for coking coal.
Recently, the supply of metallurgical and thermal coal has been over-produced, driving down its market value. Donald Trump, President of the US, has begun working hard to rejuvenate the coal industry. This has some savvy investors believing the future of coal could be quite bright.
Maxim Bederov on the future of industrial metals
Greater restrictions on Chinese output and rising domestic demands for aluminum are set to increase prices. However, the question remains on how ongoing trade probes will impact prices over time.
Just like nickel, industrial metals chromium and molybdenum are mostly used to enhance the properties of steel, but they do have other uses as well. As one of the most durable metals known so far, Chromium is a key component in making stainless steel, which is an integral part of the construction industry and used in most infrastructure projects and heavy machinery. Molybdenum is highly tolerant to heat and stress. It is widely used in the steel industry, especially as a catalyst in oil companies for the removal of sulfur from crude.
This is a good indication that opportunities for investing in industrial metals are far from over.
Options for investing in industrial metals
While investment options for precious metals like gold and silver are endless and virtually risk-free, investing in industrial metals can be much more complex and challenging. Unlike precious metals, investors rarely own industrial metals physically. They are usually bought as future contracts. Commodities such as molybdenum, tin and aluminum, for example, can be purchased or traded on the open market.
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.
Another option, my personal favorite, is to buy shares of companies that are specialized in the mining or exploration of industrial metals. Cautious investors like to play it safe by putting their investment dollars into larger, more stable companies, while risk takers prefer to back smaller producers, innovative developers or even start-ups. This type of investing requires a great deal of due diligence and research. The most important part of investing is to know your level of risk tolerance.
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