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Industrial Metals Offer Chance To Tap Global Infrastructure Growth

They may lack the glitz of silver and gold, but industrial metals are a key ingredient in the modernization of the developing world.

Copper Tubing
Macduff Everton | Iconica | Getty Images
Copper Tubing

Overshadowed by the historic rise of gold bullion over $1,900 an ounce and the tripling in silver prices in less than three years, copper, palladium and other metals have also seen sharp increases.

Those gains are expected to continue as rising long-term demand for raw materials meets head-on with supply constraints.

“A lot of the attraction of industrial metals today is emerging market demand,’’ says Joe Foster, gold analyst for the Van Eck Global Hard Assets Fund, which invests in metals and other commodities.

Like commodities in general, metals help investors diversify as their performance bears little resemblance to that of stocks. “We find metals, particularly palladium, platinum, copper, lead, and tin to be of very good use as diversifiers within our portfolio,’’ says Jonathan Citrin of advisory firm Citrin Group in Birmingham, MI, who allocates 17 percent of client portfolios to metals.

But Citrin cautions that investors should understand the benefits and how to access metals before adding them to their portfolio. He uses exchange trade funds, ETFs, and exchange traded notes, ETNs, exclusively because they provide direct exposure and ample liquidity. ETNs are bond-like securities that trade throughout the day and track the performance of a benchmark index.

Precious metals and industrial metals, also known as base metals, can also be tapped through stocks, mutual funds and futures and options contracts.

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Futures obligate investors to buy or sell an asset at a negotiated price sometime in the future, which is a way to bet on future price movements. Options, meanwhile, give you the option to buy, or right to sell, an asset at a certain price in the future.

Van Eck’s Foster prefers to access metals through mining stocks like Rio Tinto and BHP Billiton rather than futures. He says that earnings for mining stocks often go up faster than increases in metals prices and the value of a mining company’s mineral reserves are also boosted by higher prices.

Here are ways to invest in each metal:

Platinum:

Don’t let its recent price of $1,780 per ounce fool you — platinum is a key ingredient in making of catalytic convertors for autos as well as electronic components.

Gold and Other Money Metals - A CNBC Special Report
Gold and Other Money Metals - A CNBC Special Report

You can track the price of platinum through ETFS. Etfs Physical Platinum Shares, is an ETF that holds bars of platinum. The ETF trades daily but maintains wide bid-ask spreads that make it difficult to profit from short-term movements. TheFirstTrust ISE Global Platinum Index Fund tracks platinum through 23 global stocks engaged in mining and production of the precious metal.

Platinum can also be traded through futures and options on the Chicago Mercantile Exchange. Also tracking platinum futures is the iPath Dow Jones-UBS Platinum Subindex ETN.

Palladium:

Palladium
Wikipedia
Palladium

Palladium is used in many of the same ways as platinum. Investment options include futures as well as Etfs Physical Palladium SharesETF, which like its platinum counterpart sports wide spreads. Investors have poured into these white metal ETFs since the start of 2010 with ETF holdings now representing 30 percent of worldwide palladium supply and 20 percent of platinum supply, according to metals distributor Johnson Matthey.

Copper, Cobalt, Iron, and Lead

Copper:

Copper is one of the most widely used metals but also one of most scarce. You can participate in the copper trade through mining stocks like Freeport McMoRan, BHP Billiton, and Rio Tinto or the First Trust ISE Global Copper Index Fund, an ETF which tracks 27 stocks actively engaged in copper mining.

Copper is also traded through futures and options contracts on the CME as well as two ETNs: iPath Pure Beta Copper and iPath Dow Jones-UBS Copper Subindex , which invest in futures contracts on different exchanges and employ different approaches.

Kobalt
Wikipedia
Kobalt

Cobalt:

This metal, which is derived primarily from the mining of nickel and copper, is critical to the production of lithium ion batteries used in hybrid car engines and is also used in metal alloys.

Cobalt is one of the least accessible of the base metals, with the only direct investment option being futures contracts on the London Metal Exchange. You also can gain exposure through the thinly traded China Sun Group High Tech, a cobalt compound producer and indirect exposure via OM Group, a specialty chemicals company.

Nickel:

Nickel is a key component in production of steel and other metal alloys. The metal is currently suffering from a combination of oversupply and falling demand. Prices have dropped about 15 percent from a high of $28,500 per ton in February and are expected to stay weak due to uncertain global economic growth.


You can invest in nickel though the ETNs iPath Pure Beta Nickel and iPath Dow Jones-UBS Nickel Subindex or through nickel-focused mining stocks Norilsk Nickel and Vale.

Iron:

Like nickel, iron ore is also a primary component of steel. Prices for iron ore have nearly tripled since 2008 as global steel demand from China and other emerging markets has returned. You can gain access to iron prices through global mining stocks and steel stocks like Nucor and ArcelorMittal.

Lead:

Primarily used in batteries, lead is typically found in the same deposits that produce copper and zinc. Lead was the worst performing metal on the London Metal Exchange for the six months of 2011 but has since rallied. The soft metal is accessible through theiPath Pure Beta Lead ETN and iPath Dow Jones-UBS Lead Subindex .

If you prefer a slightly more diversified exposure to industrial metals, iPath offers two ETNs that track aluminum, nickel, copper and zinc futures: Pure Beta Industrial Metals and Dow Jones-UBS Industrial Metals. TheElements Rogers International Metals ETN tracks those four metals plus lead and tin.

Symbol
Price
 
Change
%Change
BHP
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CSGH
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CU
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FCX
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GHAAX
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MT
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GMKN1
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NUE
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OMG
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SWC
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PLTM
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RIO
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RJI
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VALE'A
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SILV/USD
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GOLD/USD
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IPATH PB COP
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IPATH PB IM
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IPATH DU COP TRSI
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IPATH DU IM TRSI
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IPATH DU NIK TRSI
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IPATH DU LTR SI
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IPATH PBL
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IPATH PB NIK
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ETFS PHY PALL
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ETFS PHY PLAT
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