The Growing Medicinal Play In Metals

By Aaron Levitt | May 23, 2012 AAA

With global populations continuing to grow at rapid pace, commodities investing has become a popular portfolio destination. Much of the commodity-thesis is driven by the growth of the emerging market's infrastructure and industrial demand. After all, rising demand in the face of finite supplies will ultimately drive up prices for these critical resources. To that end, funds like the iShares S&P North American Natural Resources ETF (ARCA:IGE) have surged in assets under management. However, two essential metals could see rising demand and prices outside the world of electrical wiring and cell phone components. For investors, both copper and silver could have a bright future in the world of medicine.

SEE: Using Base Metals As An Economic Indicator.

Infection Fighters
Both copper and silver could be seeing huge demand in the near future aside from investment and industrial needs. The two metals are both at the center of recent studies that highlight their roles in fighting infections. The Centers for Disease Control and Prevention estimates that hospital-acquired infections (HAIs) such as MRSA are the fourth-leading cause of death in the United States. Nearly one out of every twenty patients in U.S. hospitals acquires a HAI and more than 100,000 people die after contracting one. Battling these hospital-borne infections ends up costing consumers and healthcare providers an additional $45 billion a year.

However, both copper and silver could help turn the tide against these infections and additional costs. A recent study spearheaded by the U.S. Department of Defense, showed that adding copper to various surfaces like hospital beds and intravenous equipment killed over 82% of bacteria within hours and reduced the rate of infection in patients by more than 40%. Similar studies have shown that rate as high as 90%. Likewise, silver's antimicrobial and antibacterial properties are being put to the test. The Centers for Disease Control data shows that 15% of patients on ventilators contracted ventilator-associated pneumonia from cross-contamination. The metal was recently approved for the production of silver-coated breathing tubes in order to help combat that problem. Silver is also finding its way into surgical equipment and other hospital apparatus.

With "super bug" germs and viruses evolving faster than antibiotics, many scientists believe both copper and silver could be just what hospitals need to stem the rate of infection. That could result in greater demand for the pair of metals. Industry group, The Silver Institute predicts that medical-related silver demand will hit 3 million ounces by 2015. Meanwhile, copper producers estimate that up to 1 million tons worth of additional demand will come from anti-bacterial uses. That's about 5% of world's mined copper output.

Betting on Silver and Copper's Healthy Future
While using the metals in healthcare is just getting started, the potential long-term demand could put added pressure on already tight supplies. Freeport-McMoRan Copper & Gold's (NYSE:FCX) CEO Richard Adkerson said that there were "significant growth opportunities with the incorporation of antimicrobial copper touch surfaces in hospitals and clinics." For investors, that could mean betting on the two metals' healthy future.

Any additional pressures due to healthcare demand will directly affect prices for the two metals. With more than $8.5 billion in assets, the iShares Silver Trust (ARCA:SLV) is the easiest and largest way to play rising silver prices. The fund which holds real silver bullion in a vault has produced a roughly 16% annual return since inception in 2006. Expenses run a relatively cheap 0.50%, considering the vaulting fees. Unfortunately, there isn't a physically backed copper exchange traded fund available in the U.S. yet. The iPath DJ-UBS Copper ETN (ARCA:JJC) allows investors to participate in the copper futures market.

Perhaps the best way to bet on rising healthcare demand for the duo is to bet on the producers of the metals. The Global X Silver Miners Fund (NYSE:SIL) tracks a basket of about 35 miners including Pan American Silver (Nasdaq: PAAS) and Coeur d'Alene Mines (NYSE:CDE). The ETF charges 0.65% in expenses and can be used as a broad-play on the silver market. Likewise, the First Trust ISE Global Copper Index (Nasdaq:CU) can be used for the big copper miners. That ETF currently yields an impressive 4.33%.

SEE: The Benefits of ETF Investing.

The Bottom Line
Industrial and investment needs aside, both copper and silver could be seeing big increases in demand from an unlikely source: healthcare. The two metals' infection fighting and antibacterial abilities are now being put to the test in hospitals across the world. That could ultimately add more demand pressures to already tight supplies. For investors, that could mean gains ahead in producers such as Southern Copper (NYSE:SCCO).

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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

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