Zinc

Zinc is a base metal with a long history, both in industry and online trading. Its main uses today are in galvanization – the coating of iron or steel to prevent corrosion and oxidization, and in the production of alloys. To trade zinc profitably you need to understand market dynamics, investment vehicles, and strategy tips. This guide explains how to trade zinc, alongside rankings of the best brokers and platforms.

Zinc Trading Basics

Zinc trading is essentially the purchase and sale of the industrial metal, however, the cost and difficulties of transporting and storing the hard commodity mean that the majority of traders prefer indirect exposure to the metal.

This can be achieved via stocks, CFDs, futures, options, and other financial instruments. These are accessed principally via online brokers.

Whilst there is a growing industry in zinc recycling, the majority of its production is through ore mining and smelting.

The leading global producers, in order of quantity, are China, Peru, Australia, India and the United States. Other major producers include Mexico, Bolivia, Kazakhstan, and Sweden.

Zinc is primarily consumed in China. This is driven by galvanization needs in the development of material infrastructure. As a result, many believe that trading zinc is effectively speculating on the prosperity of China.

History

Zinc price charts show a mostly upwards trend from the early 1970s onwards.

Pronounced growth, along with considerable price fluctuation is visible from May 2005. Since then, the peak value came in June 2005 ($1211.50/Tonne), whilst troughs have included January 2009 ($1075/Tonne), December 2015 ($1607/Tonne), and April 2020 ($1930.25/Tonne).

The picture then is of market volatility. As such, investors will need to have their ear to the ground for market trends if they are to be profitable in trading zinc.

Why Trade Zinc?

Two principal reasons to trade zinc are contingent upon the international economic outlook:

If the global economy expands, demand for zinc typically increases due to the role it plays in galvanization, alloy production and other uses in industry and construction. This leads to zinc price increases, particularly if accompanied by any hiccups in the supply chain.

Similarly, there can be wisdom in investing in zinc in circumstances of a weak dollar and high inflation (or fear thereof). In such conditions, the US Federal Reserve Bank keeps interest rates low to encourage borrowing and spending. This can be good for base metal prices and encourages investment in zinc as a hedge.

A third reason to trade zinc is to diversify portfolios. If most of your assets take the form of stocks and bonds, adding a commodity such as zinc broadens your trading ground and thus reduces your overall risk.

Today’s Price Chart

What Moves Zinc Prices?

Numerous factors affect the price of zinc, including:

Demand From Major Consumers

The principal consumers of zinc are China and the US. Changes to demand in these zones have a major impact on the value of zinc.

The relative strength and weakness of major consumers’ economies affect demand for the metal. A strong economy means investment in construction and infrastructure, which increases demand for galvanised steel.

An eye on the economies of the US and China will give traders helpful indications.

Global Supply

The stock of zinc available at a given point in time varies, impacting prices. These fluctuations may be precipitated by strikes, recessions, energy cost changes and natural disasters. Announcements by mining operators are likely to prompt action by traders.

Inventories of global stocks of zinc are available from the London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE).

Geopolitical Factors

The formation of cooperative alliances between prime movers in the mining industry can have large effects on the global market.

If China’s state-owned mining company, for example, forms an investment fund with a Russian-controlled entity, an economic power base is created. Alternatively, if the world mining powerhouses (the BRICS countries of Brazil, Russia, India, China and South Africa) continue in competition with one another, the global market structure retains its stability.

Prices In Related Industries

Energy sources such as coal, oil and electricity are used in the production of zinc. Their prices too will impact the supply of zinc, and consequently its price.

Zinc Outlook

Whilst the multiple industrial uses of zinc arguably make it a reliable resource for the future, analysts differ in their view over the stability of its price into the future. Some see competition to its price in the substitution of aluminium, while others see such substitution as gradual and not destabilising.

In addition, market volatility due to the war in Ukraine leads to analysts’ reluctance to make long-term forecasts.

Environmental policies are a further factor to consider when looking at the future of zinc. Climate change is creating global scrutiny of the environmental effects of industry. This certainly applies to zinc mining. Anti-pollution measures in China, for instance, have led to the shutdown of over half of the lead and zinc mines in certain areas.

As the metal is still needed, however, cleaner methods of mining are being developed. These include renewable energy, surface mining technologies and water reclamation. These represent trends for the trader to consider when evaluating medium and long-term forecasts.

How To Trade Zinc

There are multiple vehicles available from online brokers for zinc trading:

Futures

These are contracts a trader makes with a broker to buy zinc for a certain price in the future. If the trader reads the market correctly, they agree to a contract that works to their advantage.

Futures are available on major exchanges, such as the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME).

CFDs

CFDs, or contracts for difference, allow traders to take a position on whether the price of zinc will rise or fall. The trader earns or pays the final difference, and has the freedom to close their position when they see fit.

CFDs have the advantage of allowing a relatively low initial outlay, which can be used with leverage. This means a multiplication of potential gains and losses.

Shares

Stocks can be traded in companies involved in the production of zinc. Popular zinc stocks include:

• Teck Resources Lt – A Canadian-based mining company and one of the biggest zinc producers in the world
• South 32 – One of Australia’s biggest mining companies, listed on principal global exchanges
• Vale – A Brazilian mining company with operations in around 30 countries
• Glencore – Owns a large collection of mining assets around the world

ETFs

ETFs, or exchange-traded funds, combine various assets, such as other metals and commodities.

ETFs can then be bought and sold like regular company shares. They offer advantages in terms of flexibility, simplicity and access to leverage.

Bullion

This oldest form of metal trading involves the purchase and sale of physical zinc in the form of bars, ingots or coins.

It is not popular with most retail traders due to the costs and difficulties of security, storage and transportation.

Comparing Zinc Brokers

Key areas to assess brokers with zinc trading include:

• FCA Regulation – The safest way to trade zinc in the UK is via FCA-regulated brokers. Authorised brokerages are legitimate firms with safeguarding measures like segregated accounts and limits on leverage.
• Market Access – Check the broker provides access to major zinc exchanges. These include the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME).
• Trading Vehicles – Consider the zinc trading products available, from CFDs and ETFs to futures and shares in companies involved in zinc mining and production.
• Trading Platforms – Look for a user-friendly and efficient platform. MT4, MT5 and cTrader are popular apps. Check for features that allow you to analyse and track zinc prices, including real-time price charts, technical analysis tools and integrated news streams.
• Demo Account – Beginners may want to look for zinc brokers that offer a demo account. This will allow users to test different zinc trading strategies before risking real money.

Benefits Of Trading Zinc

• Diversification – Metals don’t generally correlate to other asset classes. As a result, a diverse portfolio that includes zinc can provide insulation from shocks that affect other investments.
• Correlation to Economic Strength – Where it is clear that an economy is in growth, there is likely to be a high demand for the zinc required for construction and infrastructure.
• Volatility – Issues affecting supply and demand lend themselves to volatility in the zinc market. This volatility means that those who track developments closely, and have effective trading strategies, can turn this volatility to their advantage.

Risks Of Trading Zinc

• Chinese Influence – As China is both a major consumer and producer of zinc, its ability to release its own production to feed its own market could have a large impact on the global market.
• Volatility – Just as high volatility can lead to large profits, it can also result in significant losses if the market moves against you. As a result, trading zinc can be risky.

Zinc Trading Hours

Opening hours for zinc vary depending upon the exchange where it is traded. The London Metal Exchange (LME) opens from 1.00 am to 7.00 pm GMT Monday to Friday. Within these hours there is a schedule for kerb, open outcry, and ring trading.

These hours are subject to change, with numerous market holidays. Details can be checked on the LME website.

Other global exchanges operate at different hours. Zinc brokers too may set their own hours according to the relevant exchanges.

Bottom Line On Zinc Trading

Zinc is a commodity that has ongoing value for the part it plays in construction and urban development. A degree of security can also be provided by including zinc in a diverse trading portfolio. The metal does see relative volatility, however, so trading zinc is risky and requires a sensible approach to money management. Sign up with one of the best zinc brokers to start investing in the industrial metal.

FAQ

Article Sources

London Metal Exchange zinc trading details

Zinc mining data

Zinc properties and use cases