The Handbook of Commodity Investing

CHAPTER 34

Investing in Base Metals

Michael Killick, M. Eng.

Managing Director

Lincoln Vale

On September 29, 1980 two men entered into a famous wager. Julian Simon, an economist, believed that technological development can and will solve our exhaustible resource problem. Paul Ehrlich, a biologist, believed that overpopulation was depleting the world's resources at a disastrous rate and this process would drive up prices for all commodities. Simon bet Ehrlich that the price of any nongovernment-controlled raw material would be less in ten years time. In consultation with two Berkeley physicists, Ehrlich chose not oil or gas or lumber, but five metal prices as the subject of the wager. Ehrlich could not have chosen better. Base metals are the quintessential exhaustible resource. Just like land and oil and other natural resources, the mineral deposits from which we obtain base metals are not renewable. There are renewable energy sources, but so far no way to synthesize metal. Ehrlich lost. Each of the five metals was cheaper on September 29, 1990 than they had been ten years earlier. In each case, a technological advance either introduced a substitute or enabled an increase in supply. In this chapter, we tour the base metals industry from the investor's standpoint. While one has to concede the longer-term trend in their prices is very likely up, we must also concede their prices are extremely volatile as demonstrated in the above wager and the reader will find in this chapter investment ...