For more information, please visit .
Metals like gold and silver hold a rich history, being utilized as mediums of exchange, stores of value, and investment assets. Their stability and consistent demand in the market capture traders’ attention. Furthermore, metals possess unique traits that make them intriguing subjects for analysis and trading.
Trading metals offers numerous opportunities for profitable trading and investment. In this article, we’ll delve into various aspects of trading metals, starting with an overview of different types of metals and their characteristics as financial assets.
Why Traders Choose Metals as Trading Instruments?
Metals attract traders for several reasons:
Overview of Metals Available for Trading
Each of these metals has unique factors influencing its value and attractiveness to investors.
Market Analysis of Metals
Market analysis is key to success in metal trading. Let’s explore the fundamental and technical analysis elements of these markets, as well as the indicators and tools traders need to make informed decisions.
Fundamental Analysis
Fundamental analysis involves a thorough examination of factors that determine supply and demand for metals. Key fundamental aspects include:
Technical Analysis
Technical analysis relies on studying past price data and trading volumes to forecast future price movements. Technical analysis of metal markets includes:
Based on their trading strategies and investment goals, traders determine whether to rely on fundamental analysis, technical analysis, or a combination of both for more effective metal trading.
Risk Management Strategies
Trading Strategies for Metals
Trading metals offers traders a multitude of opportunities to apply various strategies. The primary directions include long-term and short-term trading. Additionally, popular methods such as trend trading and day trading deserve attention, each with its own features and advantages.
Long-Term Trading in Metals
Long-term trading in metals is suitable for investors willing to hold positions for several months or even years. Such traders typically rely on fundamental analysis, including economic and geopolitical factors, and focus on long-term price trends. By regularly reviewing their positions, they capture significant price movements and view metals as long-term investments for capital preservation and growth.
Short-Term Trading in Metals
Short-term trading in metals, also known as day trading, targets traders who close their positions within a single day or even minutes. Key characteristics of short-term trading in metals include:
Popular Trading Strategies for Metals
The choice of a trading strategy depends on your goals, the time you’re willing to dedicate to trading, and your experience. Remember the importance of continuous learning and skill improvement in metal trading, and you’ll be on the path to success!
Recommended reading:
Industrial metals can offer some compelling trading opportunities, especially as at times they tend to be subject to very sharp changes in price.
Investors can position themselves to take advantage of such movement through trading in futures, options, Contracts for Differences (CFDs) or ETFs on the underlying metals as well as by taking positions on the shares of mining and metals companies.
Industrial metals are used in a range of ways, predominantly in the construction and manufacturing sectors.
The most widely used industrial metals are steel, aluminium, copper, lead, tin, nickel and zinc. However, with the rise of the electric car industry and increased demand for rechargeable batteries metals such as cobalt are becoming more sought after as well.
An electric car.
Industrial metals prices today are mainly influenced by supply and demand, with prices tending to rise when economic activity increases and fall when it contracts.
By the same token, current prices of industrial metals are also heavily influenced by future expectations surrounding supply and demand.
Higher demand drives prices up, but supply is also critical as a favourable impact from rising demand could theoretically be totally offset by increased supply.
In practice though, there can be a considerable lag before increased supply comes on stream to cater for higher demand.
When the global economy slumps, smaller miners and producers can find the lower prices that result uneconomic, resulting in numerous shut downs.
An abandoned mine.
It means that when the global economy finally improves and prices begin to rise once more, there might be considerably less available supply. Higher demand combined with more constrained supply can make prices jump sharply.
Eventually, once more supply comes on stream, prices can become especially sensitive to any fresh economic downturn. More abundant supply combined with a fall in demand may bring abrupt falls in prices. The cycle tends to repeat itself.
The London Metal Exchange (LME) has long been the leader in industrial metals trading.
Theoretically, exchange traded metals, with the benefit of electronic and floor trading, are characterised by lower volatility and more accurate metal market prices compared with metals traded outside formal exchanges.
The LME is an oft-cited source for both spot prices and forward prices.
Trading at the LME.
While the LME was originally set up for the trading of non-ferrous metals (those not containing iron), these days it also offers contracts in the ferrous category.
Today, along with the base metals, namely copper, nickel, zinc and lead, LME also facilitates trading in aluminium, steel and in minor metals such as molybdenum and cobalt.
Of the various categories of metals within the industrial complex, most research and data are focused on the large base metal markets (copper, nickel, zinc and lead).
Cobalt and molybdenum metal contracts were added to the LME as recently as 2008.
The base metals market is the most developed, distinguished by huge trading volumes, electronic trading and widespread derivatives contracts that serve to boost market efficiency.
As a result, the difference between bid and offer prices for base metals tends to be considerably smaller than for other industrial metals.
Evolving needs of industry however, including the rise of smartphones and more latterly electric cars, means there is growing activity around some of the less well-known metals.
For instance, cobalt and molybdenum metal contracts were added to the LME as recently as 2008.
Smartphones and their users.
The LME also began offering contracts in steel during the same year, a move that was closely followed by some other competing exchanges around the world.
Steel has traditionally been viewed as less tradeable by investors compared with many other metals, being less standardised due to the wide range of different grades available.
Changes in the physical metals inventories of the LME are an important gauge of the global market.
Industrial metals traded on the LME are priced per tonne and in US dollars.
Options and futures contracts are available on LME metals, potentially enabling investors to profit from rises and falls in the underlying prices, as well as facilitating more efficient price discovery and liquidity in the metals market.
Investors use the contracts available through the exchange to either take speculative positions on future price changes or to hedge their existing exposures in metals.
As well as facilitating the trading of metals derivatives as an exchange and providing price data, the LME is also a physical market for the consumers and producers of the metals.
Changes in the physical metals inventories of the LME are an important gauge of the state of the global metals market.
Falling inventories may indicate rising demand for a given metal as participants buy up supplies in reaction to emerging shortages in the market.
Rising inventories could be indicative of the reverse scenario, and potentially a sign of oversupply.
While LME faces competition from the COMEX division of the New York Mercantile exchange, the industrial metals traded on this latter are limited to aluminium, copper, zinc and lead.
Trading at the NYME.
In contrast to the LME, where prices are quoted in tonnes, COMEX prices are quoted in pounds. Just like LME, COMEX offers a variety of derivatives contracts.
Increasingly, the Shanghai Metal Exchange (SHME) is also viewed as an important competitor to the LME.
In some ways, SHME complements the LME however; by operating on a different time zone, it enables investors to carry on trading in certain metals when the LME is closed.
SHME offers contracts on copper, steel, aluminium, zinc, lead, tin and nickel.
While the globalisation and broadening of the contracts available for investors to trade across the various exchanges results in more opportunities, it also means there is more information on the market for investors to process.
For instance, inventory data in China is becoming an important gauge of the market, just as the LME inventory data has always been.
Copper pipes.
Its wide variety of applications and versatility means copper tends to be highly sensitive to economic cycles with prices rising/falling as the global economic accelerates/slows.
Viewed as a good conductor of heat and electricity, it is heavily used in the building industry.
As well as its direct applications, copper has long been used to make alloys, such as brass, sterling silver and cupronickel.
More recently, copper has also caught investors’ attention for its usefulness in the fast-growing electric car industry. This has been partly responsible for a 20% year-to-date (2017) rise in copper prices.
The world could run out of mineable copper in as little as 25 years.
Most copper is mined in Latin America, with Chile as the world’s leading producer. Just a small fraction of the world’s copper reserves is economically viable to mine.
On some estimates the world could run out of mineable copper in as little as 25 years. On the flip side, however, it’s also one of the most recycled metals; as a result, some 80% of all copper ever mined is thought to be still in use.
Copper futures have long been traded on the London Metal Exchange (LME) and are also available on the New York Mercantile Exchange (NYMEX).
Like copper, Aluminium is a good conductor of electricity and heat. However, in the case of the latter, its central characteristic of being both strong and lightweight has been a main driver of its widespread applications.
Aluminium leads the way among metals in terms of its variety of uses. Its favourable strength-to-weight ratio means aluminium is fast becoming the metal of choice in transportation, taking over the role of steel.
Its non-corrosive nature gives aluminium another natural advantage, removing the need for high-cost anti-corrosion treatments.
The drive for fuel efficiency, especially with the rapid take-up of electric cars, means that aluminium is on course to comprise 60% of all cars within the next 10 years, compared with 40% at present.
Rising demand has seen aluminium prices rise by 21% over the past year.
Its malleable nature, resistance to corrosion and high strength-to-weight ratio, means aluminium has also become popular in the construction sector. In addition, aluminium’s shiny appearance has made it suitable for use in consumer goods such as televisions and smartphones.
Rising demand has seen aluminium prices rise by 21% over the past year. However, production is likely to come up against overcapacity issues in the future, as it has done in the past, as Chinese smelters raise output to meet demand.
Aluminium is made from bauxite, a relatively abundant ore, with Australia, Brazil and China among the top producers.
A bauxite mine.
As the extraction process from bauxite uses electrolysis, recycling aluminium can be much more economic, cutting down on electricity bills.
Recycling rates have reached up to 95% in the building and transport sectors. While rates vary around the world, the percentage of aluminium cans being recycled is converging around the 70% mark in both the US and the EU.
Aluminium futures are traded on the LME, NYMEX and Tokyo Commodity Exchange (TOCOM).
Zinc has long been used in combination with copper to form brass, an alloy that is favoured for its resistance to corrosion and gold-like appearance, making it ideal for such things as door knobs and locks.
However, the major application of zinc today is as a corrosive-resistant coating for steel, making zinc prices sensitive to cyclical steel demand.
To a much lesser degree, Zinc can also be used as an ingredient in electrical batteries. So-called Zinc-air rechargeable batteries for electric vehicles are less common than other battery types, such as lead-acid or nickel-metal hydride.
The relatively abundant reserves of zinc across the world (up to 2.8bn tonnes) means there is arguable scope for it to become more widely used in electric car batteries in the future.
At the same time, much of these reserves are not necessarily economically viable to mine at present, and on this basis the world could run out of economic supplies of zinc by as early as 2030.
Zinc recycling rates are currently at around 80% in certain developed countries.
Making such forecasts difficult, however, is the large rate of zinc recycling, currently put at around 80% in certain developed countries.
China, Peru and Australia are the leading producers of zinc, with the latter two among the key exporters.
China tends to be a big consumer of zinc, with demand having risen to satisfy the needs of big Chinese infrastructure projects. The latter has helped drive a 30% rise in zinc prices over the past year.
Most trading in zinc futures takes place through the LME.
A zinc ore sample.
The most common use of nickel (around 70% of output) is as an input in the production of stainless steel, a corrosive-resistant form of steel that is widely seen around the home.
Stainless steel also has widespread use across industry, from medical instruments to subsea pipelines in the oil & gas sector.
Although accounting for a relatively small proportion of nickel demand at present, it is also increasingly used in batteries for the fast-growing electric vehicle industry.
Most nickel reserves are found in Australia and New Caledonia, though both currently lag the Philippines, Russia and Canada, which are currently the world’s largest producers.
Prices are up by around 10% over the past year, having rallied strongly in the middle of 2017 amid strong demand from top consumer China on the back of robust stainless-steel production.
The market has also been supported by hopes of rising demand for nickel on the back of the rapid growth being seen in the electric car industry.
Over recent weeks, nickel prices have given back some of their earlier gains, with measures by the Chinese authorities to clamp down on production over the winter months set to curtail steel production.
Nickel futures are primarily traded on the LME.
Nickel ingots.
Lead’s properties as a shield against radioactive substances is well known.
The Romans used lead in piping for their water supply, which proved to be not such a good idea given the metal’s toxicity for humans. Europeans had still not learnt their lesson by the 18th century, when the widespread use of lead in makeup resulted in a high incidence of poisoning.
Today, lead’s primary use is in the manufacture of batteries, which account for 80% of global demand, though it still continues to be widely used in the building industry to prevent water penetration in roofing and cladding.
Helped by growing demand for automotive batteries, and the rapid rise of electric, battery-powered vehicles, lead prices have risen by around 20% over the past year.
Lead is mined across the world, with China, Australia and the US as the key producers. Given increasing demand however, on some projections lead could run out by the year 2030.
Again, recycling has become a major force, making such predictions difficult. Globally, over 50% of the lead used in new products is recycled. In North America and Europe, the rate is virtually 100% driven by the universal recycling of lead-acid batteries.
Lead futures have long been traded on the LME.
Lead ore.
Tin is commonly used as a coating for other metals to prevent corrosion and is also used to make alloys such as soft solder, a vital ingredient in the process of joining different types of metals.
Most window glass is also manufactured by floating molten glass on molten tin to create a flat surface.
However, it is the use of tin as a soft solder that is likely to drive demand over the coming years, as this is how permanent connections between different electronic components are made in consumer goods.
Demand for consumer electronics is therefore a vital determinant of demand and prices for tin.
A circuit board.
The increasing use of solder in the automotive and solar power industries also look likely to spur growth in demand.
In contrast to some other metals that have seen price increases over the past year, tin is actually down by around 6%.
However, prices had been on an upward trajectory for much of 2016, recovering from a slump in 2015 caused by waning Chinese demand due to economic slowdown.
China is the world’s top producer of tin, though China’s output is focused on meeting domestic demand.
While Chinese demand for tin is an important price parameter, global prices are also partly linked to the output of leading exporters, such as Burma and Australia.
Tin is finite, with mineable resources set to run out within 35 years on some estimates. At below 10%, the overall recycling rate for tin is also much less than some other metals.
Futures for tin are available on the LME.
To produce steel, iron ore must be mined and then smelted at high temperatures, with impurities removed and carbon added.
China is the largest producer though by virtue of its status as the largest consumer of iron ore, it is also the biggest importer. At the same time, most of China’s iron ore production is low quality ore, putting increased demand on higher quality ores from overseas.
Australia is by far the largest exporter of iron ore, and also has the world’s largest reserves. Brazil is another big producer and exporter country.
Although the world’s reserves are seemingly vast, on some estimates iron ore could run out in around 60 years given its intensive use.
The steel made from iron ore is of critical importance to the global economy, having a wide variety of uses in construction of buildings and infrastructure as well as in the manufacturing of heavy equipment, consumables and vehicles.
Despite the growth in popularity of aluminium, steel currently remains the main material used in the bodies of cars. Steel is also used in a multitude of everyday items found in the home.
Steel has become a highly controversial topic among policymakers around the world with China widely accused of dumping some of its huge output at relatively low prices.
Steel rate, however, remains around 50% higher on the year, having recovered somewhat from an earlier slump that was blamed on production overcapacity in China and an economic slowdown across the country in 2015.
Steel production.
Having rallied early in the year on signs of strong demand for steel, iron ore prices have slipped recently amid concerns over the impact of lower Chinese steel production over the winter months as the local authorities move to reduce pollution. Iron ore has lost around 12% over the past year.
Along with improved demand, steel price rate has benefited from the same Chinese measures to cut down on production, as smelters in certain provinces are being shut down over the winter months.
Various exchanges now offer steel futures, including the LME, Chicago Mercantile Exchange (CME), Shanghai Futures Exchange (SHFE), Dubai Gold and Commodities Exchange (DGCX), India’s National Commodity & Derivatives Exchange (NCDEX) and the Multi Commodity Exchange of India (MCX).
In 2008, the LME started offering contracts based on nine different grades of steel billets. These represent the intermediate stage of steel production, a semi-finished good that requires further processing.
Today, LME also offers contracts on steel within scrap metal categories, as an initial input in the steel production chain, as well as contracts on the final, finished product in the chain, known as rebar.
Investors can arbitrage between the scrap value of steel right through to billets and rebar.
It means investors can arbitrage between the scrap value of steel and the scrap prices quoted on the exchange right through to billets at the intermediate stage and finally rebar at the end of the value chain.
Iron ore contracts on the other hand are traded on the Chicago Mercantile Exchange (CME) and the Singapore Exchange (SGX). The two most common types of ore referenced are 58% Fe and 62% Fe. The higher the percentage refers to a higher quality of ore; above the 60% threshold, ores are considered ready to be processed in iron-making blast furnaces.
Around 80% of all molybdenum used is dedicated to the steel industry, as an essential component in making high-grade stainless steel. It is also a key ingredient in the production of various other alloys.
Molybdenum’s resistance to very higher temperatures makes it especially useful.
For instance, the metal is crucial for producing alloys that can help maintain safety in nuclear power plants and in jet aeroplane engines, where temperatures soar.
Molybdenum is used in jet engines.
Its high melting point also means that it is key to making the electrodes used in glass furnaces.
The petroleum industry represents a major source of demand for molybdenum, using it to catalyse the removal of organic sulphur compounds in liquefaction processes.
Molybdenum prices have risen by about 5% over the past year as the market has firmed on the back of increased demand from China and the global oil and gas industry.
China followed by the US is the leading producer of molybdenum, feeding domestic demand from its vast steel industry. Chile is the next biggest producer, with Peru and Mexico some distance behind.
With molybdenum often mined as a by-product of copper, molybdenum output tends to be aligned to copper production.
Molybdenum was the worst performing metal in 2015 amid slowing Chinese demand.
The slowdown in the Chinese economy in 2015 and the corresponding decline in the nation’s steel output meant molybdenum was the worst performing metal that year, highlighting its price-sensitivity to economic cycles, and especially Chinese growth and economic policy.
In the region of 25-30% of all molybdenum used comes from recycling, a source of molybdenum that could grow in importance in the future. The recycling rate may determine how long the world’s current reserves can last, which on some estimates will be exhausted in around 80 years.
Molybdenum futures are available on the LME.
Cobalt is used to create magnetic, hard-wearing, high-strength alloys. For instance, it is combined with aluminium and nickel to create powerful magnets. Cobalt is also mixed with chromium and tungsten to create cutting tools.
Some types of stainless steels use some cobalt, while there is widespread demand for cobalt to make alloys resistant to high temperatures that are used in the likes of jet engines or turbines.
Cobalt is also used to create lithium cobalt oxide and nickel metal-hyrdride batteries, commonly found in mobile phones. More recently, the rechargeable batteries used in electric vehicles have become another source of demand for cobalt.
A rechargeable battery pack inside an electric car.
Rapid growth in the electric car segment and expectations of rising demand for Cobalt has consequently put upward pressure on prices as the market for rechargeable batteries looks set to grow exponentially.
On some estimates, demand for cobalt is expected to rise by 20% in each of the next five years. On the supply side, there is also significant constraint, especially as cobalt mining is concentrated in the Democratic Republic of the Congo (DRC), where around 50% of the world’s supply originates.
As well as global demand, cobalt prices therefore also tend to be sensitive to political developments within the DRC.
This year, prices reached nine-year highs, with cobalt trading near the $30 per pound mark. Currently at around $28 per pound, prices have risen by around 115% over the past year.
Apple halted cobalt purchases from the DRC amid concerns over the use of child labour and poor working conditions.
Along with excitement over the growing demand for Cobalt from the electric car industry, the shortage of ethically sourced cobalt is also driving up prices, especially as much of the cobalt mined in the DRC uses child labour.
Earlier this year, smartphone maker Apple said it had temporarily halted purchases of cobalt from the DRC amid concerns over the use of child labour and poor working conditions.
The sheer growth in demand means that some experts believe the world could run out of mineable cobalt in 40 years.
Cobalt futures are available on the LME.
BHP Billiton and Rio Tinto offices.
Listed in Australia, London, New York and South Africa, BHP Billiton is one the largest mining companies in the world. With the bulk of its mining operations concentrated in Australia, it is one of the world’s largest producers of iron ore and copper, while also counting coal and nickel among its core assets.
The shares are up by just 4% over the past year. Improvement in areas such as copper and nickel has been partly offset by lower prices for iron ore.
Rio Tinto also ranks as one the world’s biggest mining companies, with copper, iron ore and aluminium among its main products. The Australia, London and New York-listed group became the world’s largest producer of aluminium through its acquisition of Alcan in 2007.
Its iron ore operations are concentrated in Western Australia while its bauxite mines are scattered across Australia, Brazil and Guinea. Shares are up by 17% over the past year, with Rio especially boosted by improving demand and higher prices for aluminium.
A Glencore copper mine in Chile.
Brazil-based Vale is the world’s largest producer of iron ore and nickel, while also having copper, cobalt and bauxite mining assets. In addition, Vale is a key producer of fertilisers.
The company operates several hydroelectricity power plants and is Brazil’s biggest logistics operator, owning the railways, ships and ports that are used to transport its products. Sales of iron ore account for most of its revenues, with its iron ore assets concentrated in Brazil.
Nickel sales also represent a big chunk of Vale’s revenues, as it owns nickel mines in Brazil, Canada, Indonesia and New Caledonia. Shares are listed in Brazil and have risen by around 23% over the past year.
A Vale iron ore facility.
Freeport is a US-based, New-York-listed mining company, distinguished as the world’s largest producer of molybdenum and the second biggest producer of copper. It also has sizeable gold assets.
Freeport’s mines are located in North and South America and Indonesia. Shares are little changed over the past year, having been held back by the Indonesian government’s renegotiation of Freeport’s rights to operate in the country, where much of its copper assets are located.
Freeport-McMoRan offices.
ArcelorMittal is the largest steel producer in the world, based in Luxembourg and listed on various continental European exchanges as well as in New York.
Operating in more than 60 countries, it mainly producers steel in Europe, followed by the US. Shares have increased by about 16% over the past year, with the company having benefited from the general rise in steel prices.
ArcellorMittal is the chief sponsor of the ArcellorMittal Orbit, a sculpture and observation tower located in London's Olympic park.
The Commodity Metals Price Index, which includes commonly traded metals such as copper, aluminium, iron ore, tin, nickel, zinc and lead, is up by around 30% over the past year.
The peak of the commodity super cycle was in 2011, when raw materials such as iron ore reached record highs.
With so much of the demand for many of the world’s metals hinging on China, the country’s economic slowdown in 2015 brought some profound falls in prices.
Industrial metals trading requires a lot of research.
Iron ore for instance reached a peak of $191.9 per tonne in 2011, only to slump to a low of $37 per tonne by the end of 2015. Prices have since firmed, with iron ore now trading at around $67 per tonne, an 81% improvement on the 2015 low.
However, much of the recent excitement surrounding industrial metals has more to do with the potential future being offered by the emerging needs of sectors such as the fast-growing electric vehicle industry.
Perhaps, more than trading in any other commodity, industrial metals trading requires a lot of research. Rising demand from emerging industries for metals such as cobalt would appear to make for a bullish outlook.
However, there are already fears that further price rises could eventually prompt users to substitute cobalt.
The sharp price movements and broad range of derivative contracts available through metal trading platforms, mean there are substantial opportunities for investors to gain from both price rises and falls in industrial metals.
Online metal trading means that investing in metal is no longer the preserve of just institutional investors or the very wealthy.
As well as trading in futures, options, CFDs and ETFs linked to the underlying metals, investors can also seek to profit from movements in the metal msrket prices by trading in mining stocks or the shares of metals related companies.
Rate this article
Rate this article:
For more information, please visit our website.
Are you interested in learning more about Sealing Strip Supplier? Contact us today to secure an expert consultation!