Open an account with a clearing firm or broker. Your account will be maintained and your trades will be guaranteed by the clearing business or broker. You’ll need a partnership with a clearing FCM that supports the front-end to trade with CME Direct.
What is the best way to trade zinc?
The most direct way to exchange zinc is through physical zinc bullion such as ingots. Bullion trade, on the other hand, may necessitate the use of a safe storage facility.
In the end, the cost of storage and the poor value-to-weight ratio of physical zinc may make it impractical to keep.
Zinc Futures
The Chicago Mercantile Exchange (CME) offers a zinc contract with a 25-metric-ton settlement.
The contracts are traded on the CME Globex electronic trading platform around the world and have a range of expiration months.
Futures are a type of derivative that allows traders to make leveraged bets on commodity prices. If prices fall, traders will need to deposit more margin to keep their positions open. Contracts are physically settled by delivery of zinc at expiration.
Futures trading necessitates a high level of knowledge due to the impact of factors such as storage costs and interest rates on pricing.
Zinc ETFs
These financial products, like stocks, are traded on exchanges as shares. The Bloomberg Zinc Total Return (formerly DJ-UBS) Index is tracked by ETFS Zinc (LN: ZINC), an exchange-traded commodity.
Commodities Futures
Buying and selling contracts on a futures exchange is the most common way to trade commodities. The way it works is that you engage into a contract with another investor depending on the price of a commodity in the future.
For example, you might commit to buy 10,000 barrels of oil at $45 a barrel in 30 days under a commodity future contract. You don’t transmit the physical items at the end of the contract; instead, you close it out by taking an opposing position on the spot trading market. When the futures contract expires, you would close the position by entering another contract to sell 10,000 barrels of oil at the current market price.
You will earn if the spot price is greater than your contract price of $45 per barrel, and you will lose money if it is lower. If you had entered a futures contract to sell oil, on the other hand, you would profit when the spot price fell and lose money when the spot price rose. You have the option to close out your position before the contract expires at any time.
To invest in futures trading, you’ll need to open an account with a speciality brokerage firm that specializes in these transactions.
“Traders who have an account with a brokerage business that offers futures and options can access these markets,” says Craig Turner, senior commodities broker at Daniels Trading in Chicago. Each time you start or end a position in commodity futures, you will owe a commission.
Physical Commodity Purchases
You are not purchasing or selling the physical commodity when you trade futures contracts. Futures traders do not take delivery of millions of barrels of oil or herds of live cattlefutures are solely based on price fluctuations. Individual investors, on the other hand, can and do take actual custody of precious metals like gold and silver, such as gold bars, coins, or jewelry.
These investments expose you to commodity gold, silver, and other precious metals while also allowing you to feel the weight of your money. However, transaction costs for precious metals are higher than for other assets.
“This method is only viable for commodities with a high value density, such as gold, silver, or platinum. “Even then, investors will pay huge markups on the retail market over spot prices,” Giannotto warns.
Commodities Stocks
Another alternative is to purchase the stock of a commodity-related company. If you want to invest in oil, you could buy stock in an oil refining or drilling company; if you want to invest in grain, you could buy stock in a huge agriculture company or one that distributes seeds.
The price of the underlying commodity is tracked by these types of stock investments. If oil prices rise, an oil business should become more profitable, causing its stock price to rise as well.
Because you aren’t wagering on the commodity price, investing in commodity stocks is less risky than investing directly in commodities. Even if the commodity’s value falls, a well-run business can still generate money. However, this is true in both directions. While increased oil prices may improve an oil company’s stock price, other factors such as management and overall market share also have a role. If you’re searching for an investment that closely matches the price of a commodity, buying stocks isn’t the best option.
Commodities ETFs, Mutual Funds and ETNs
Commodity-based mutual funds, exchange-traded funds (ETFs), and exchange-traded notes (ETNs) are also available. These funds pool money from a large number of small investors to create a huge portfolio that attempts to track the price of a commodity or a basket of commoditiesfor example, an energy mutual fund that invests in a variety of energy commodities. The fund may purchase futures contracts to monitor the price, or it may invest in the stock of various commodity-exposed companies.
“Commodity ETFs have genuinely democratized commodities trading for all investors,” adds Giannotto. “They are low priced, easily accessible, and very liquid.”
You can acquire access to a much wider choice of commodities with a minimal investment than if you tried to establish your own portfolio. Plus, the portfolio will be managed by a professional investor. However, you’ll have to pay the commodity fund a higher management charge than you would if you made the investments yourself. Furthermore, depending on the fund’s strategy, the commodity price may not be accurately tracked.
Commodity Pools and Managed Futures
Private funds that invest in commodities include commodity pools and managed futures. They’re similar to mutual funds, except that many of them aren’t publicly traded, so you have to get permission to invest in them.
These funds can employ more advanced trading methods than ETFs and mutual funds, resulting in larger returns. In exchange, managerial costs may be increased.
Commodity vs Stock Trading
Leverage is far more widespread in commodity dealing than in stock trading. This means you only put down a portion of the investment’s total cost. Instead of putting down the entire $75,000 for the full value of an oil futures contract, you might put down 10%, or $7,500.
According to the contract, you must maintain a minimum balance based on the estimated value of the trade. If the market price begins to move in a direction where you are more likely to lose money, you will be subject to a margin call and will be asked to deposit additional funds to bring the trade back to the required minimum value.
“Trading on margin can result in higher profits than the stock market, but due to the leverage used, it can also result in higher losses,” Turner explains. Small price changes can have a large impact on your investment return, so there’s a lot of room for profit in the commodity market, but there’s also a lot of room for loss.
Commodities are also a short-term investment, particularly if you enter a futures contract with a specified expiration date. This is in contrast to stocks and other market assets, where it is more typical to buy and hold assets for a long time.
Furthermore, because commodities markets are open nearly 24 hours a day, you have greater time to make deals. When trading stocks, you should do so during regular business hours, when the stock exchanges are open. Although premarket futures provide some early access, most stock trading takes place during regular business hours.
Overall, commodity trading is riskier and more speculative than stock trading, but it can also result in faster and higher rewards if your positions succeed.
Is it wise to put money into zinc?
You might be shocked to learn that zinc does more than enhance your immune system if you’re used to seeing it on the cough and cold aisle at the grocery store. It’s actually the world’s fourth most often utilized metal (after iron, aluminum, and copper). Zinc galvanizing prevents rust in iron and steel, just as modest amounts of zinc have been used to ward against viruses in humans and this process accounts for 60% of global zinc production.
Brass is a zinc-copper alloy that is commonly used in plumbing, automobile production, electronics, and other common household products. Zinc oxide, a major component in the creation of rubber and lubricants, is the third most prevalent application.
Since 2000, zinc has traded 15% above its 110-year average, according to Credit Suisse, which has published multiple assessments on the investment quality of various metals.
In 2016, new mining, smelting, and production facilities in China, Ireland, and Peru pushed zinc prices skyward in compared to indexed base metal prices.
Analysts at the time attributed the increase to supply constraints. Glencore halted 500 kt zinc output until the market improved after the reserves at the Century and Lisheen mines were depleted.
Zinc prices are expected to rise beyond $2,700 per ton in 2018, a level last seen in 2010/2011. Zinc briefly broke through the $3,000 per ton barrier at the end of 2017. Over the last decade or so, all of the construction in China and the Pacific Rim in general has been a huge factor, and that trend is not going away anytime soon.
Is there an ETF for zinc?
The ZINC ETF is an exchange-traded fund that invests in zinc. WisdomTree’s ZINC Exchange Traded Fund (ETF) invests in Base Metals Commodities. It’s designed to keep track of an index: Total Return – USD for the Bloomberg Zinc Subindex.
Is there a strong need for zinc?
After being muted for most of 2020 due to the COVID-19 epidemic, the zinc market started 2021 on a high note. The market rose considerably in the first half of last year, thanks to an increase in construction spending and a recovery in global economies.
However, demand for zinc in the global market surged dramatically in the second half of 2021, owing to rising demand from both new and established industries, such as electric car batteries and renewables, as well as existing sectors, such as galvanizing, construction, and automotive.
A bumpy second half
The rapid rebound and pent-up demand that began in 2020 brought with it its own set of challenges, which began in May 2021 and resulted in high transportation costs, as well as material procurement and supply bottlenecks. These concerns were worsened by a probable deficit of 17,000 metric tons in the zinc market by the end of 2021, according to the International Lead and Zinc Study Group (ILZSG) of Lisbon, Portugal.
By September of last year, practically all commodities markets were affected by similar difficulties. Zinc prices and premiums began to climb as the availability of primary material became scarce. During this time, demand remained strong, putting additional upward pressure on zinc prices.
If the car sector’s production halts and lower output impacted demand in the first half of 2021, the second half was highlighted by an energy crisis in Europe and China, which forced many zinc smelters to cut production or shut down entirely.
Due to high energy prices, Nyrstar, based in the Netherlands, cut production in half during this time, while Glencore’s 100,000-metric-ton-per-year zinc sulphide plant in Portovesme, Italy, shut down for maintenance until December. After water entered its ventilation shaft at Boliden’s Tara Mines in Ireland, one of Europe’s largest zinc reserves, production was halted for a few days.
These factors made the already scarce zinc supply even more scarce. According to ILZSG estimates, the global zinc shortfall increased by 30,000 metric tons in a month from September of last year to 44,000 metric tons.
According to an analysis by Yash Sawant, a research associate at Mumbai, India-based Angel One Ltd, China’s property crisis, which began in September 2021, lowered demand from the country, which is one of the main consumers of zinc. He goes on to say that poor demand forecasts are expected to persist, which could be a significant headwind for zinc.
Because zinc is used in galvanizing, a slower rate of increase in China’s steel output due to government measures limiting energy use clouded the picture for zinc for much of the third quarter of 2021, according to Sawant.
Strong fundamentals
The fundamentals remain robust, indicating that zinc market demand will continue to grow this year. During a presentation at the International Zinc Association’s International Zinc Recycling Conference Nov. 2, 2021, in Charlotte, North Carolina, Michael Cuoco, head of metals and bulks fund sales at StoneX Group Inc., based in New York City, remarked on this. Global demand for galvanized steel is high, he added, expanding by more than 12% each year, while semis from brass factories are growing by more than 7.5 percent per year. With China auctioning off its old inventory, demand in this region is expected to continue strong, despite vehicle manufacturing backlogs and government investment announcements.
Supply will likely be further constrained due to reduced zinc mining in China, as well as supply and logistics difficulties in South America. According to Cuoco, China would require around 1 million metric tons of zinc each year to fill the void left by supply limits.
Refined zinc demand is expected to rise by 6.2 percent to 14.09 million metric tons by the end of 2021, according to the latest ILZSG projection, and by 2.3 percent to 14.41 million metric tons this year. Despite a pause in October 2021, the Chinese galvanizing industry picked up speed again in November of last year, with the ILZSG projecting a 2.1 percent increase in Chinese zinc consumption in 2021 before falling to 1.5 percent in 2022.
Refined zinc output is expected to expand 2.5 percent to 14.13 million metric tons in 2021, according to ILZSG, thanks to 3.2 percent growth in China and increasing output in Italy, Japan, Peru, India, and the United States. In the first quarter of this year, a 20,000-metric-ton expansion of Canadian Electrolytic Zinc Ltd.’s Salaberry-de-Valleyfield smelter in Quebec is scheduled to boost world refined zinc production by 2.3 percent to 14.45 million metric tons.
Pricing pressures
Supply constraints in the second half of 2021 raised LME Zinc cash prices, which reached a new high of $3,814 per metric ton on Oct. 18, 2021. Prices have remained strong since then, with LME Zinc cash in November 2021 holding firmly within the $3,000 per metric ton region.
According to Fitch’s forecast, prices could climb over the next two years as a result of the continued refined zinc scarcity, which is expected to last until 2023. Fitch has raised its LME Zinc spot projections by $100 per metric ton to $2,900 per metric ton in the short run. Prices are predicted to remain steady until 2022, before declining to $2,500 per metric ton in 2023 and $2,200 by 2025.
Zinc’s long-term price trends remain stable at $2,100 per metric ton, however the metal’s price trends from 2022 to 2025 have been raised by $100 to $500 per metric ton.
The rise in special high grade (SHG) zinc premiums matched the increased LME zinc prices. The ascent began in September 2021, when the SHG zinc premium increased from 7.5 to 8.5 cents per pound to more than 10 cents per pound. The premium for SHG zinc grew as Europe’s energy crisis worsened. Due to supply concerns and high freight costs, Davis Index estimated that U.S. SHG zinc premiums averaged between 12 and 15 cents per pound by November.
SHG zinc premiums are predicted to stay in this range at least until January of this year in the United States, however many suppliers believe they will likely rise higher in Europe if smelters continue to restrict output.
Premiums for zinc alloy grades have risen as a result of higher premiums, with Zamak No. 3 and Zamak No. 7 premiums averaging 22 to 26 cents per pound over the LME Zinc cash price for much of the last quarter of 2021. Zinc scrap prices have climbed in lockstep with LME Zinc cash prices during the last six months, with new zinc diecast prices averaging between 94 cents and $1 per pound, with the higher range particularly visible in October 2021 when LME Zinc cash prices reached a new high. In November, the Davis Index for new zinc diecast dropped to around 94 cents per pound delivered to a U.S. consumer.
Looking at 2022
Zinc demand will continue to grow, but whether supply can keep up remains to be seen. In 2022, the ILZSG forecasts a minor surplus of 44,000 metric tons. Much, according to Cuoco, will be determined by factors such as zinc concentrate production. Over the next six months, the timing of the resumption of European smelters, as well as continued freight concerns, could define the surplus-deficit balances for zinc.
To trade futures, how much money do you need?
If you assume you’ll need to employ a four-tick stop loss (the stop loss is four ticks distant from the entry price), the minimum you should risk on a trade in this market is $50, or four times $12.50. The minimum account balance, according to the 1% rule, should be at least $5,000 and preferably higher. If you want to risk a larger sum on each trade or take more than one contract, you’ll need a bigger account. The recommended balance for trading two contracts with this method is $10,000.