Chase the Base!

When you see the word ‘precious metal,’ what comes to your mind? Gold and silver? Platinum maybe? But what if I told you, that these are just the ones that we know of. In fact, there are several metals that we actively use daily and know not of their actual value! Confused? Let’s talk.

Apart from being infinitely fertile, the land under our feet has blessed us with another remarkable opportunity. India has large deposits of minerals like iron ore, cooper, bauxite, manganese and more! These base metals are used in various industries, and are a crucial part of helping us with technological advancement.

Your smartphone uses complex circuitry of copper and manganese. Iron ore is purified and treated and converted into steel, an essential tool for construction purposes. Bauxite is converted into metal which is used for manufacture of cans as well as vehicles. These metals, while abundantly available, are an essential part of our lives. Their ease of availability is why we have been able to incorporate them into cheap yet effective everyday use items.

Well then, if that is the case, there must be an investment product around these metals? YES, there is! Investing in the commodities market is an intelligent way to diversify any investor’s portfolio.

Some important things to keep in mind

Investing in the base metal market has more risk than other conventional investment options. This is because this particular market is governed by the demand-supply dynamics. For example, last year, when India came to a grinding halt for about three months, the base metal market took a nosedive.

But as it is with any investment - high risk, high return!

Unlike gold and silver, the prices of these metals are volatile. Hence the market also moves in a slightly erratic fashion. However, the overall trend over the last decade has been upwards. 

Some base metals perform better than others. Recently, aluminium has become a metal of choice because of its ease of malleability as well as endless recyclability.

Methods of investing in base metals

Futures Contracts - It is an obligation to buy or sell a fixed item (metal) on a particular date at a specified predefined price. The obligation extends to both the buyer and the seller. Both the parties can settle the contract in cash without actually taking the delivery of the goods.

Companies - You can invest in the mining companies that drill for ore, factories that purify that ore or in companies that buy this ore for shaping and cutting the metal into sheets etc. for further use. Since these metals are abundantly available, the options for investments are many. Companies usually specialise in one kind of ore. Copper, zinc and lead, iron and nickel, there are many combinations. Based on your market outlook and your availability of funds, you can easily invest in shares of one of these companies. 

Mutual Funds – If you want to create a diversified portfolio in commodities, commodity mutual funds are a good option. These funds invest in a different set of commodities as per the pre-defined investment objective.

ETFs - Exchange traded funds are another option to invest in commodities. However, in India, most of the commodity ETFs are limited to investment in gold only.

The market of base metals is one that will continue to grow. Metals like copper and aluminium have several applications in the world. With newer and developing technologies, the need for these cheap, easily available and important metals will only have an upwards trajectory. Investing in base metals is a lucrative opportunity that should not be missed. While it may seem like a bit boring, remember, your car, your phone, your laptop, your makeup, your appliances ALL employ base metals in either their construction or circuitry. Just because they don’t glitter, does not mean they’re not precious!

Key takeaways:

• Base metals are volatile and provide good opportunity when traded at an exchange.
• Prices of base metals and trading provides an indication of level of industrial activities and reflects economic scenario in a country.
• Ensure, you trade only after proper due diligence and research.

Disclaimer:

ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No: 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. I-Sec is distributor for Mutual funds. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.