Zinc futures

Zinc is a bluish-white metal that has been used in India since ancient times, mainly in the production of brass, which is an alloy of copper and zinc. It is said that zinc was smelted in India as early as the 6th century BC.

Today, most of the metal is used in the galvanising process, to coat iron or steel with a layer of zinc to prevent corrosion or rusting. Zinc is also used to make brass and bronze and other alloys. It is also an essential trace element — small amounts of zinc are necessary to maintain human health. Zinc is one of the few commodities which is also available for trade. You can buy and sell zinc futures through commodity exchanges in India.

Zinc production and supply

Zinc is used widely around the world and comes fourth after iron, aluminium and copper in terms of use. China accounted for 5 million of the 13 million tonnes produced in 2017, making it the leading producer. India is the third biggest in the world, accounting for 1.3 million tonnes; one of the world’s top zinc mines is located in Rajasthan. Peru occupies the second spot with 1.4 million tonnes.

Zinc demand and prices

The biggest consumer of zinc in the world is China. Zinc production has been stagnant for a while because of mine closures and the lack of new exploration initiatives. In recent months, the decision of the US to impose tariffs on steel put a brake on zinc prices. However, global demand for the metal is expected to grow. These factors make worth considering to invest in zinc futures.

Zinc futures

As we said before, zinc futures are traded on commodity exchanges like the London Metals Exchange (LME) and the New York Mercantile Exchange (NYMEX). In India, these can be bought and sold on the Multi-Commodity Exchange (MCX).

These futures are used mainly by steel producers who want to hedge against any changes in the prices of zinc, an essential raw material. However, speculators and small investors can get an advantage, especially since prices of the metal are expected to rise in the future because of a supply deficit.

Since China is the biggest consumer of zinc, the fortunes of zinc futures will depend on how its economy will do. If economic growth in China continues in the future, you will probably have a good chance of making profits from zinc futures.

China is also the world largest exporter of steel, and so the demand for this metal the world over will affect demand for zinc as well. This is because, as we have pointed out earlier, most of the zinc is used for galvanising steel. Steel is the raw material for many industries like automobiles, so steel demand is a good barometer of economic performance.

Like all other commodities futures, there is considerable scope for leverage in zinc futures since margins are low. However, the risks are high as well. If you don’t have an appetite for risk, you can invest in zinc options. As we know, options give you the right to opt out if prices don’t meet your expectations.

Conclusion

Zinc futures are very dependent on the fortunes of the world economy, especially the steel sector. Demand from China too will play a considerable role. You should consider all these factors before deciding to invest in them.