Industrial Metals (Commodities)

Written By

Dan Buckley

Updated

Jan 6, 2025

Industrial metals power industries from construction to technology.

These commodities, extracted from the earth, refined, and traded globally, form the foundation of infrastructure, transportation, energy, and consumer goods.

Here we look at industrial metals, including their types, uses, market dynamics, and future trends.

Key Takeaways – Industrial Metals

Global Demand Drivers – Industrial metals like copper, aluminum, and zinc are essential for infrastructure, tech, and energy sectors, with demand linked to economic growth and global credit cycles.

Price Influencers – Market dynamics, such as China’s dominance, geopolitical events, and energy costs, heavily impact prices and supply chains.

Economic Indicators – Copper prices often signal global economic health, while aluminum and steel track industrial output trends.

Recycling Potential – Metals like aluminum and copper are highly recyclable, reducing costs and environmental impact.

Future Trends – The rise of EVs and renewables is reshaping demand, boosting interest in metals like nickel and lithium.

What Are Industrial Metals?

Industrial metals, also known as base metals, are materials used in industrial applications due to their strength, durability, and conductivity.

Unlike precious metals, such as gold and silver, industrial metals have a primary focus on utility rather than decorative or monetary value.

Characteristics of Industrial Metals

High Strength and Durability – Essential for structural applications.
Thermal and Electrical Conductivity – Key to electronics and energy systems.
Abundance in Nature – Found in significant quantities compared to precious metals.
Corrosion Resistance – Often treated or alloyed to withstand environmental degradation.

Types of Industrial Metals

1. Steel and Iron

Steel and iron are the lifeblood of construction and manufacturing.

Iron ore, the raw material for steel, is abundant and cost-effective.

Applications of Steel and Iron

Construction – Used in buildings, bridges, and infrastructure.
Automotive Industry – Frameworks and engines rely heavily on steel.
Energy Sector – Wind turbines, pipelines, and oil rigs.
Manufacturing – A wide array of machinery, tools, and equipment are made from steel and iron.
Household Appliances – Many everyday items like refrigerators, washing machines, and ovens contain steel and iron components.

In terms of a rough percentage breakdown:

Construction (50%) – Buildings, infrastructure, and bridges depend on its strength and accounts for around half the market.
Transportation (15%) – Cars, trains, and ships utilize steel in their structures.
Machinery (15%) – Heavy equipment, tools, and appliances contain steel components.
Metal Products (10%) – This includes items like pipes, containers, and fasteners.
Other (10%) – A variety of applications like appliances, furniture, and packaging.

Market Dynamics

Steel production is a key economic indicator.

China’s dominance in production and demand has heavy influence on global prices.

The industry also faces challenges like decarbonization efforts to reduce environmental impact.

2. Aluminum

Aluminum is lightweight, corrosion-resistant, and highly versatile, making it a favorite across multiple industries.

Extracted from bauxite ore, aluminum production is energy-intensive, raising concerns about carbon emissions.

Efforts to recycle aluminum are critical due to its recyclability without losing quality.

Key Uses of Aluminum

Aerospace – Aircraft structures due to its lightweight and strength.
Packaging – Beverage cans and food containers.
Electronics – Heat sinks and wiring.

Here’s a quick breakdown of its main uses:

Transportation (28%) – Cars, planes, and ships rely on aluminum for its lightweight strength.
Packaging (20%) – Cans, foil, and containers keep food fresh and products safe.
Construction (13%) – Windows, doors, and roofing benefit from its durability and corrosion resistance.
Electrical (8%) – Power lines utilize aluminum’s excellent conductivity.
Consumer Goods (10%) – Appliances, cookware, and furniture often incorporate aluminum components.
Machinery (7%) – Industrial equipment uses aluminum for various parts.
Other (14%) – This includes a wide range of applications like paint, explosives, and even medicine.

3. Copper

Copper is renowned for its exceptional electrical and thermal conductivity, making it key in electrical systems.

Applications of Copper

Electricity – Power grids, motors, and transformers.
Plumbing – Durable pipes and fittings.
Renewable Energy – Solar panels and wind turbines.

Market Trends

Copper prices are often seen as a bellwether for global economic health.

The transition to renewable energy sources has amplified copper demand (e.g., electric vehicles (EVs)).

Copper’s exceptional conductivity makes its most common use in electrical applications, but it’s used in many other areas as well:

Electrical & Electronics (43%) – Wiring, motors, generators, and electronic components rely heavily on copper.
Construction (30%) – Roofing, plumbing, and architectural elements utilize copper’s durability and corrosion resistance.
Industrial Machinery (12%) – Heat exchangers, industrial valves, and other equipment utilize copper.
Transportation (10%) – Vehicles, trains, and aircraft incorporate copper in various parts.
Consumer Products (5%) – Cookware, jewelry, and coins are some examples of consumer goods that utilize copper.

4. Zinc

Zinc is primarily used for galvanization, which protects steel and iron from rusting.

Uses of Zinc

Construction – Coatings for steel in bridges and buildings.
Batteries – Zinc-carbon and alkaline batteries.
Alloys – Brass, made from copper and zinc, is widely used.

Here’s a breakdown:

Galvanizing (50%) – Coating steel and iron to protect them from rusting.
Die casting (17%) – Creating precise components for various industries.
Brass & Bronze (17%) – Alloying with copper to form these important materials.
Rolled Zinc (6%) – Used in roofing, gutters, and architectural applications.
Chemicals (6%) – Found in products like zinc oxide (used in sunscreen) and zinc sulfate (used in fertilizers).
Miscellaneous (4%) – This includes uses in batteries, tires, and even medicine.

Sustainability Concerns

As zinc is a finite resource, recycling and efficient usage are crucial to meet long-term industrial needs.

5. Nickel

Nickel is valued for its resistance to corrosion and extreme temperatures.

The surge in electric vehicles has propelled nickel demand, pushing miners and refineries to adapt rapidly.

Applications of Nickel

Stainless Steel – An essential component.
Marine Applications: Nickel alloys resist corrosion in seawater, making them ideal for shipbuilding and offshore structures.
Batteries – Lithium-ion batteries, especially in EVs.
Aerospace – High-performance alloys for jet engines.
Chemical Industry: Used as a catalyst in various processes, such as hydrogenation of oils.
Electroplating: Provides a protective and decorative coating for other metals.

Nickel’s diverse properties lend it to a wide range of uses:

Stainless Steel (65%) – A key ingredient for this corrosion-resistant material.
Batteries (15%) – Essential for lithium-ion batteries powering electric vehicles and electronics.
Alloying (8%) – Used in superalloys and nonferrous alloys for aerospace and other demanding applications.
Electroplating (6%) – Provides a durable and attractive finish for various metal objects.
Other (6%) – Includes applications in catalysts, coinage, foundry products, and more.

6. Lead

Lead, despite health concerns, remains important in specific industries due to its unique properties.

Primary Uses of Lead

Batteries – Lead-acid batteries dominate automotive and backup power systems.
Radiation Shielding – In medical and industrial applications.
Ammunition – Military and hunting use.

So while lead may have a bad reputation these days, but it still has important industrial uses:

Lead-acid Batteries (86%) – The vast majority of lead goes into these batteries, powering cars, trucks, and other vehicles.
Rolled and Extruded Products (7%) – Lead sheets and pipes are used in construction, radiation shielding, and other applications.
Lead Compounds (5%) – Oxides and salts of lead are used in various chemical processes and products.
Shot and Ammunition (1%) – Though declining, lead is still used in ammunition for hunting and sport shooting.
Other (1%) – This includes uses in alloys, solders, and some specialized applications.

The Industrial Metals Market

Factors Influencing Prices

Supply and Demand – Economic growth, industrial output, and technological advancements drive demand.
Geopolitical Events – Trade wars, sanctions, and resource nationalism disrupt supply chains.
Energy Costs – Mining and refining are energy-intensive; fluctuations in energy prices impact production costs.
Currency Exchange Rates – A strong US dollar can make dollar-denominated metals more expensive for buyers using other currencies, affecting demand.
Interest Rates – Higher interest rates can increase the cost of financing for metal producers and consumers, potentially dampening market activity.
Environmental Regulations – Stricter environmental rules can increase production costs and limit supply, especially for metals with environmentally challenging extraction or refining processes.
Technological Advancements – New technologies can increase efficiency in mining and processing, potentially boosting supply or enabling the use of alternative materials, impacting demand for specific metals.
Investment Activity – Speculation and investment in metal futures markets can influence prices, sometimes disconnecting them from immediate supply and demand fundamentals.
Recycling Rates – Increased recycling of metals can affect the supply of secondary metal, influencing overall market dynamics.

Major Producers and Consumers

China – Dominates both production and consumption of many industrial metals. Its economic health and industrial policies heavily impact global prices and trade flows.
United States – A major consumer of industrial metals, with significant influence on market demand and pricing. Also plays a leading role in technological advancements and recycling.
European Union – A collective of countries with substantial consumption and production of industrial metals. Strong environmental regulations and technological capabilities influence the market.
Australia – A leading exporter of iron ore, coal, and other key raw materials, making it a key player in the global supply chain. The AUD is often called a “commodity currency” because of its exports of commodities.
Brazil – A major producer and exporter of iron ore, bauxite (aluminum ore), and other metals, significantly impacting global supply.
Russia – A significant producer and exporter of nickel, aluminum, and other metals. Geopolitical factors and policies can influence market stability.
Canada – A major producer of nickel, copper, and zinc, contributing significantly to global supply.
Chile – The world’s leading copper producer, holding significant sway over the copper market.
South Africa – A major producer of platinum group metals, chromium, and other key resources.

This list highlights the key players, but the industrial metals market is complex and interconnected. Many other countries also play important roles in production, consumption, and trade.

Challenges in the Industrial Metals Industry

Environmental Impact

Mining and refining processes contribute significantly to carbon emissions, habitat destruction, and water pollution.

Striking a balance between industrial needs and environmental preservation is an ongoing challenge.

Resource Scarcity

Some metals face depletion risks, which makes recycling and substitution key for long-term availability.

Technological Disruption

Advances in material science and manufacturing may reduce dependence on traditional metals, shifting demand patterns.

The Role of Recycling

Recycling is important in the industrial metals market, offering environmental and economic benefits.

Benefits of Recycling

Reduced Carbon Footprint – Recycling uses less energy than primary production.
Resource Conservation – Extends the life cycle of finite materials.
Economic Opportunities – Creates jobs in recycling industries and reduces waste.

Examples

Aluminum – Recycling saves 95% of the energy required for primary production.
Copper – High recyclability preserves valuable reserves for future use.

Future Trends in Industrial Metals

Green Metals

The global push for sustainability has introduced the concept of “green metals,” produced using renewable energy and environmentally friendly practices.

Electric Vehicles and Renewables

The shift to EVs and renewable energy is reshaping demand for metals like lithium, nickel, and copper.

Digitalization and AI

Smart mining technologies, driven by artificial intelligence, are improving efficiency and reducing waste.

Circular Economy

Emphasis on reuse and recycling is a standard of sustainable industrial practices.

Innovators and Engineers

Material scientists and engineers continually push the boundaries of what’s possible with industrial metals, creating stronger, lighter, and more sustainable materials.

Opportunities in Industrial Metals

Commodities Market

Investing in futures contracts allows traders to speculate on price movements.

Stocks of Mining Companies

Shares of companies involved in mining and refining industrial metals offer indirect exposure.

Exchange-Traded Funds (ETFs)

ETFs focused on industrial metals provide diversified options with lower risk.

They also do automatic roll of futures contracts for those who don’t want to actively manage.

Physical Metal

Investing in physical metal, such as bullion or coins, provides direct ownership of the asset.

This can be a good option for long-term investors looking for a hedge against inflation or economic unknowns.

It’s nonetheless essential to consider storage and security costs.

Derivatives

Derivatives are financial contracts that derive their value from an underlying asset, such as industrial metals.

These contracts can include futures, options, and swaps.

This allows traders to speculate on price movements, hedge against risk, or gain leveraged exposure to the market.

However, derivatives often involve complex strategies and carry a higher degree of risk compared to traditional investments.

Industrial Metals As Part of a Balanced Beta Allocation

Industrial metals can be used in a balanced beta approach by acting as a hedge in specific economic scenarios.

Their intrinsic value and demand often rise during periods of economic expansion, particularly when growth and inflation increase simultaneously.

In this “rising growth/rising inflation” environment (relative to expectations, as that’s what assets are priced off of), metals such as copper and aluminum thrive due to their correlation with industrial production and infrastructure development.

Additionally, industrial metals diversify portfolios by reducing over-reliance on traditional equities or fixed income, helping to stabilize returns.

While equities dominate risk in conventional 60/40 portfolios (where equity risk is typically 85-90% of the portfolio due to their structurally higher duration), incorporating industrial metals adjusts the portfolio’s environmental sensitivity, and balances exposure to inflationary pressures.

In a balanced beta allocation, a moderate proportion of industrial metals can improve risk-adjusted returns by leveraging the unique drivers of their pricing.

Aligning portfolio weights to environmental drivers – growth and inflation – industrial metals contribute to diversification without excessive reliance on equity beta.

This strategic inclusion helps reduce drawdowns during equity market downturns while taking advantage of global economic expansions, creating a more resilient, balanced portfolio.

Industrial Metals and Global Politics

Resource Nationalism

Countries rich in natural resources often assert greater control over mining activities, which impacts global supply chains.

Rare Earth Metals

Critical rare earth metals like neodymium, praseodymium, and dysprosium are important for technologies such as electric vehicles, wind turbines, and consumer electronics.

Producers, with China being dominant, often exert control over supply through export restrictions and strategic stockpiling to maintain price stability and secure their domestic industries.

Trade Wars and Tariffs

Trade disputes, such as US-China tensions, can create volatility in metal prices and supply.

Strategic Reserves

Governments maintain reserves of critical metals to safeguard against supply disruptions.

Conclusion

Industrial metals are an important foundation in modern life, enabling various technological advances and infrastructure development.

And as global priorities shift toward sustainability, the industry will adapt and be a beneficiary in many ways, helping balance economic growth with environmental stewardship.

Understanding these metals and their market dynamics – beyond the implications for trading – provides insights into the forces shaping the world today.