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Chapter 11: Base Metals

15 Mins 26 Sep 2022 0 COMMENT

When you switch on the light in your home or office, the electricity that causes the bulb to light up passes through a copper wire; the stainless steel utensils you use for cooking and eating contain nickel, making them corrosion free; the car you drive is made of aluminium and the battery that illuminates your car light in the night contains lead. The electricity coming to your home is carried through aluminium wires from the electricity grid and the iron rods used in home construction are made corrosion-free with zinc.

Yes, metals are an integral part of our daily lives.

Let us understand more about a few industrial metals; their derivatives trading on global exchanges as well as Indian exchanges.

Did you know?

London Metal Exchange started its operation in 1877 and it allows Futures trading with varying expiries such as 3 months, 6 months, 9 months, 12 months and 123 months, among others.

London Metal Exchange is the largest and global benchmark exchange for all metal trading across the globe. It allows derivatives trading in six base metals, namely, aluminium, copper, zinc, nickel, lead and tin, making it one the most trusted platforms for producers and consumers of metals across the world.

China is the world’s largest consumer of all base metals because of its population, industrial sector growth etc.

In the following paragraphs, you will gain a detailed understanding about each of the five base metals available for trading at Indian exchanges.

Aluminium

The power cables transmitting electricity from the grid to your home are made up of aluminium; the car body you drive is made up of aluminium and the foil that you wrap food in is also made from aluminium. Since aluminium has such extensive usage, let understand more about this metal.

Aluminium is the third most abundant element present in the earth’s crust after oxygen and silicon. It is a one-of-a-kind metal because it is light, strong, long-lasting, flexible, and impermeable. It's rust-proof and completely recyclable. Aluminium's distinct properties make it a very appealing metal. Its primary applications are in transportation, packaging (cans), defence, and consumer electronics.

In the global aluminium market, China holds the lion’s share, accounting for 57% of total global production and 56% of total global consumption followed by the European Union.

*Source: International Aluminium Institute and Statista (Data year: 2020)

Did you know?

India is the second largest producer of aluminium in the world after China.

Major global aluminium miners include Rio Tinto, Alcoa, Hydro, The Aluminium Corporation of China, etc. Nalco, Hindalco and Balco are major aluminium miners in India.

Copper

Every time you switch on a light or turn on a tap, it is copper that is delivering the electricity or water to you. Copper is a critical metal for humans as it possesses more useful characteristics than any other metal. Copper is the third most consumed metal in the world after iron and aluminium. The fortunes of copper are directly proportional to the state of the global economy. It can be alloyed with other metals to gain additional desirable properties such as hardness, tensile strength, and even greater corrosion resistance.

Since it is the best non-precious metal conductor of electricity, it is the preferred and safest conductor of electrical wiring in buildings. It has remarkable strength, ductility, and resistance to creeping and corrosion. Copper is now produced in over 40 nations. The probability of global supply disruption is low due to worldwide dispersion of copper production. Due to increased demand in sectors such as electrical and electronic products, building construction, industrial machinery and equipment, transportation equipment, consumer and general products, the world's refined copper usage has increased by over 300 percent in the last 50 years.

Globally, copper supply comes from two sources —mine supply and scrap supply. Chile is the world’s largest mine producer of copper* accounting for 28.5% of global supply followed by Peru (11%), China (8.5%) and Congo (6.5%). China is the world’s largest consumer of all metals including copper because of its appetite for industrial consumption.

* Source: Statista, World mine production of copper, by country, 2020

Lead

Lead is the major component in power backup batteries in your home and vehicle batteries. It is available in the earth’s crust along with other metals such as zinc, silver, and copper ores. It is one of the most environment-friendly and recyclable products available. It can be recycled endless number of times without the metal losing any of its physical or chemical qualities.

India is one of the largest consumers of lead in the world after China and USA. Due to increasing population and urbanisation in India and globally, the demand for lead-based batteries for vehicles and home consumption is increasing at a fast pace.

Nickel

All stainless steel utensils in your home are made by adding nickel to iron as the former makes the latter corrosion free. The revolutionary electric vehicles, which are the future of the automobile industry, use nickel-based batteries.

Nickel—a white silvery metal—is the main alloying metal required in the production of stainless steel. It enhances the strength and lifespan of products manufactured from stainless steel and makes them superior to those produced by non-stainless steel. It is the fifth most common element on the planet, and found in abundance in the crust. Nickel is found in a wide range of products in our daily life, including food preparation equipment, mobile phones, medical equipment, transportation, buildings, and power generation—the list is limitless. Around 3,000 nickel-containing alloys are used in everyday life.

It is also utilised to make super-alloys, which are frequently employed in the aerospace sector. Batteries for electronic gadgets—mobile phones, computers, digital cameras, and other goods that require tiny, lightweight, and high-capacity power sources—are made from nickel-cadmium and other nickel alloys.

Global nickel consumption by first use indicates that 72% is consumed for manufacture of stainless steel followed by 7% in electroplating, 7% in alloys steel and casting, 6% in nickel and copper-based alloys and the remaining 7% in batteries. Its consumption by end use reveals that it is consumed by the engineering segment with 33% of total consumption followed by metal goods at 23%, transport at 16%, building and construction at 14%, electronics at 9% and others at 5%.

*Source: Nickel institute

In the recent years, nickel is finding its largest usage in production of nickel-based batteries for vehicles following various government initiatives by nations worldwide to reduce carbon in their countries and allowing for cleaner and greener energy-based solutions.

Zinc

The iron rods used in building construction are galvanised using zinc to make it rust-free. Besides this, zinc finds its biggest usage in the pharmaceutical industry. It is the fourth most common metal in use after iron, aluminium and copper. Zinc, like lead, can be recycled infinitely, without loss of its physical or chemical properties. It is present in a wide variety of foods and is found particularly in association with protein foods.

Of the total zinc produced, more than half of it is used to galvanise other metals such as steel or iron to prevent corrosion. Large quantities of zinc are used to produce die castings which are used extensively by the automotive, electrical and hardware industries. Zinc is also used as a chemical compound in rubber, ceramics, paints, and agriculture. Zinc coating is widely used to protect finished products ranging from structural steelwork for buildings and bridges to nuts, bolts, strips, sheets, wires, and tubes.

Mine production accounts for about 70% of production and the remaining 30% comes from recycling of zinc from secondary sources. China is the world’s largest producer and consumer of zinc because of its industrial capacity as well as consumer demand, which dictate the global zinc market.

 

Summary

  • Base metals are among essential commodities as they make our daily lives easier.
  • London Metals Exchange is the world’s largest and price benchmarking exchange for base metals across the globe.
  • China is the largest and India is the second largest producer of aluminium in the world.
  • Copper is widely used in equipment manufacturing and building construction. Chile is the largest mine producer of copper.
  • Base metals find usage in construction, transportation, industries, pharmaceuticals, batteries, electronic gadgets, vehicles etc.

You now have an understanding of the production and usage of base metals. Are you excited about trading in the derivatives of these metals? In the next chapter, we will discuss derivatives of these base metals.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The securities quoted are exemplary and are not recommendatory. Such representations are not indicative of future results. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.