Understanding the Zinc Spot Price and Zinc Futures

February 8, 2016

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It’s difficult to find bright spots in the resource space today, but some market participants continue to look at zinc as a profitable possibility.  

The base metal is appealing in large part because its fundamentals remain strong. Though it had a tough time in 2015, analysts still believe that the zinc market is facing a medium-term deficit — with demand steady and supply on the decline as major zinc mines close, the expectation is that eventually a price squeeze will hit the market.

Of course, the question is exactly when that will happen. While that’s tough to predict, investors can certainly prepare themselves in the meantime. That means identifying which companies are likely to do well when the tide turns, but it also means understanding how zinc pricing works. With that in mind, here’s a brief overview of what investors need to know about the zinc spot price and zinc futures.

What is the zinc spot price?

InvestingAnswers defines “spot price” as “the current market price at which an asset is bought or sold for immediate payment and delivery.” Taking the concept further, Investopedia states that the spot price of a security “is regarded as the explicit value of the security at any given time in the marketplace.”

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That might sound complex, but InvestingAnswers simplifies the idea with an example, noting that on November 29, 2010, the spot price of gold was $1,367.40 per ounce on the COMEX. “That was the price at which one ounce of gold could be purchased at that particular moment in time,” notes the publication.

So what does all that information mean in terms of zinc? Put simply, the zinc spot price is the current price that zinc is being bought and sold for. Investors looking for that information often turn to KitcoKitco publishes a 24-hour zinc spot price chart, as well as 30-day, 60-day six-month, one-year and five-year zinc spot price charts. Those charts are a great resource for those looking for current and historical zinc spot price information.

The London Metal Exchange (LME) is also a good source of information on the zinc spot price, but unlike Kitco, the LME publishes zinc spot price information in US dollars per tonne, not US dollars per pound. It’s also worth noting that some of the LME’s zinc spot price information is only accessible to those who log in to the site.

What about zinc futures?

An understanding of the zinc spot price would be incomplete without an understanding of zinc futures. Why? As InvestingAnswers notes, the spot price of a security is important in and of itself, but “becomes an even more important concept when it’s viewed through the eyes of the $3 trillion derivatives market.”

A derivative is a contract whose value is derived from the performance of an underlying entity. Examples of derivatives include forwards, options and of course futures — as InvestingAnswers states, they “allow buyers and sellers to ‘lock in’ the price at which they buy or sell an asset in the future.” That’s desirable because it allows investors to reduce risk.

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Again, that might seem confusing. But essentially the key concept to understand is that the spot price of a security refers to its current price, while the futures price of a security refers to its price at a future date. The two are connected because spot prices are used to set futures prices (according to Investopedia, futures prices for commodities are “determined using the commodity’s spot price, the risk free rate and time to maturity of the contract).

In terms of how that all relates to zinc, The Options Guide notes that investors interested in zinc can trade zinc futures on the LME under the contract code ZS in lots of 25 tonnes. The physical specifications for these lots call for zinc at a minimum of 99.995 percent purity conforming to BS EN 1179:2003.

As mentioned, futures trading allows investors to manage risk. Another article on The Options Guide explains how that works using the following chart:

zinc futures

In the scenario displayed in the chart, the zinc price moved only 10 percent, yet the return on investment was 61 percent. According to the publication, “[t]his leverage was made possible by the relatively low margin (approximately 17 percent) require to control a large amount of zinc represented by each contract.” Of course, leverage can work both ways, and can be harmful for investors in adverse market conditions.

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Investor takeaway

As can be seen, having some knowledge of the zinc spot price and zinc futures can be beneficial for investors interested in entering the zinc space. That’s especially true with zinc now looking like it may be poised to make gains sooner rather than later. It will certainly be interesting to watch how the market develops, and to see what profits can be made.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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