Zinc is a metal that is blue-white in colour, although it tends to turn white when it comes into contact with the air. It is the 24th most common element found in the Earth’s crust and was discovered in its pure form around 1746. After steel, aluminium and copper it is the 4th most used metal in the world. It is highly resistant to corrosion, particularly from the atmosphere, and is hard and brittle, as well as being moderately conductive. Zinc is also important as a mineral for people’s health, and is said to possess anti-oxidant properties as well as properties that can potentially boost immune function. It is the second most common trace metal found in the human body. Zinc therefore is a valuable commodity for a number of reasons.
The zinc commodity has several features that make it appealing to commodity brokers and other traders on the commodity exchanges. Zinc has myriad applications, and so potentially has a wide range of buyers. Furthermore in 2008 there was surplus of zinc produced, which consequently meant that several mines were forced to close due to an inability to maintain adequate profit margins. This in turn meant that only the most cost-effective mines were left in operation, and it is reasonable to predict that if this trend continues then demand will soon once again outstrip supply, especially when the ever-increasing number of applications for zinc is taken into account.
The main consumer markets for zinc are the construction and automotive industries, which account for over 50% of the zinc consumed worldwide. In these contexts, zinc is primarily used for its anti-corrosive properties. The zinc used is employed as a coating for other metals, namely steel and iron, in a process called galvanisation. This allows the coated metal to then be exposed to the elements without risk of oxidation or decay, which is obviously important in the case of car bodies or the structural frames of buildings. Zinc is also commonly used to make die-cast objects, of which small toys for children are a common example. Beyond this, zinc is also used to form alloys, the most common of which being brass and bronze. A further example of a practical application of zinc is its use in compound form, whereby it may be used to add pigment or luminescence to paint.
China, the USA and Japan are usually at the forefront of zinc consumption worldwide, whereas Canada, China and Australia are seen as the main areas of production.
Zinc futures are primarily traded at the London Metal Exchange (LME), but zinc trading also occurs at other smaller exchanges such as the Multi Commodity Exchange of India (MCX). LME Zinc futures are traded using the contract code ZS, while on the MCX the symbol ZINC is used.
If one was to closely monitor the price of zinc futures on the London Metal Exchange, there would be several factors that could conceivably influence the LME zinc price. As previously mentioned, global stock levels play a large part in determining the spot price of zinc. Indeed, the spot price of zinc has in the near past dropped 48% due to a global surplus of zinc. If there should be a deficit of zinc however, this spot price would increase as rapidly as it decreased, due to the massive range of applications that zinc has. The LME zinc price could also be adversely affected by the rising or falling of the price of substitute materials. For example, aluminium and magnesium are competitors as die-cast materials, and a sudden rise in price of these could increase the demand for LME zinc, and subsequently increase LME zinc prices. Lastly, new mining and smelting techniques could also drive down the price of zinc futures as mines become more cost-effective, increasing the supply yet further.
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