Why is Zinc Valuable?
Zinc is a bluish-white element that can be refined into a metal. It resists corrosion and, therefore, is often used to galvanize iron and steel.
Zinc is used to produce brass, which is a zinc alloy that contains between 55 and 95% copper.
However, long before this discovery, civilizations were using zinc. According to the journal Ancient Asia, miners were smelting zinc in India by the ninth century BC.
During the Roman Empire, soldiers forged brass weapons from copper and zinc, and evidence from a smelting facility shows large-scale production of the metal took place in India between 1,100 and 1,500 AD.
Today mines worldwide extract more than 11.9 million metric tons of zinc annually. Zinc mines exist in more than 50 countries around the world, and the metal plays a key role in the steel industry.
How is Zinc Produced?
The supply of zinc derives from two sources: primary production (mining) and secondary production (recycling). Mining provides most of the supply, although the United States Geological Survey (USGS) estimates the quantity recovered from recycling in the United States represented about 25% of total consumption.
More than 80% of zinc mining takes place in underground mines. Surface mining in open pits accounts for about 8% of mining, while mines that use both methods comprise the remaining 12%.
Several ores contain zinc including zinc sulfide (sphalerite), zinc carbonate (smithsonite), zinc silicate (calamine) and manganese and iron compounds known as franklinite.
Zinc and lead ores usually occur together, and they often contain other valuable metals such as gold, silver and copper.
The process of primary production involves four steps:
- Ore concentration
A series of steps called froth flotation breaks down the ores into particles with greater concentrations of zinc. First, the ore is ground with into a fine powder and placed in flotation tanks with water, pine oil and chemicals
The tanks agitate the mixture, and zinc particles float to the top, while clay and other silicates sink to the bottom.
The zinc particles are coated with chemicals to protect them from water. When air is injected into the tanks, the zinc particles adhere to the bubbles that form and remain at the top of the tank, while the remaining impurities float to the bottom. Scrapers then remove the bubbly mixture of concentrated zinc.
Filters then remove the water and oils from the tank and leave behind a paste-like mixture. This mixture is combined with lime – the product made from heating limestone – and roasted in furnaces at temperatures of 2,500 degrees Fahrenheit. This produces a solid mass of zinc oxide.
During the second step, high-powered furnaces break down zinc oxide into elemental zinc.
The furnaces use electricity, natural gas or coal to reach temperatures of 2,200 degrees Fahrenheit. A series of chemical reactions produces zinc and carbon dioxide. The carbon dioxide bonds with the zinc to re-form zinc oxide.
To keep the zinc separate, molten lead is introduced into the chamber. The zinc then dissolves into a molten state and gets carried to another chamber to cool.
The zinc molten, which is cooled to 824 degrees Fahrenheit, can be further purified by cooling it in the chamber for several hours. During this refining stage, iron and other impurities sink to the bottom, while pure zinc remains at the top.
Recycling zinc is an economically viable activity. In the United States, about 35,000 tons of zinc is recycled annually. Recycling materials include residue from the process of galvanizing zinc with steel and zinc oxide recovered from blast furnaces.
China is the leading zinc mining country in the world. It produces almost 40% of the annual supply of the metal.
Top 10 Zinc Mining Countries
|Rank||Flag||Country||Mine Production (Thousands of Metric Tons)|
These are the reserves of each country as reported by the USGS:
Which Countries Have The Most Zinc?
|Rank||Flag||Country||Thousands of Metric Tons|
About one-third of zinc produced goes to galvanize other metals such as steel and iron. However, zinc has many other important applications.
5 Main Uses of Zinc
|Galvanizing Material||Galvanization of steel and iron prevents corrosion and rusting. Electroplating is the most common method for galvanizing steel. Items including car bodies, street lamp posts, safety barriers and suspension bridges use galvanized steel.|
|Alloys||Zinc combines with other metals to form strong alloys. Brass, nickel silver and aluminum solder are examples of zinc alloys. Musical instruments and hardware items use brass in construction, while electrical items and pipes use solder.|
|Die-Castings||Die-casting is the production of metal parts using molds. The automobile, electrical and hardware industries all use zinc for die-casting parts.|
|Zinc Oxide||Manufacturers of many products use zinc oxide in production:|
|Zinc Sulfide||Zinc sulfide is an important component in many products:|
Zinc is also an essential nutrient for living things. A typical human body contains about 2.5 grams of zinc and consumes 15 milligrams per day. Foods with high zinc content include herring, beef, lamb, cheese and sunflower seeds.
What Drives the Price of Zinc?
The price of zinc is driven mostly by these five factors:
- Chinese Demand
- Chinese Supply
- Global Stocks
- US Demand
- Input Prices
As with most industrial commodities, China plays a pivotal role in determining zinc prices.
China is the top consumer of refined zinc used in galvanized steel.
Therefore, a key indicator of zinc demand in China and elsewhere is steel demand. Decisions about whether to undertake or hold off on infrastructure projects can create huge fluctuations in steel demand. Ultimately, these decisions can flow through to the zinc market.
Monetary policy from the People’s Bank of China is one important factor that can affect both steel and zinc demand. Stimulating measures can stoke demand for these commodities, while tighter monetary policies can depress demand.
China’s GDP growth has slowed considerably in recent years, creating doubts about future demand for all industrial metals including zinc. However, there are nascent signs that the economy may be rebounding. Ultimately, zinc prices depend heavily on Chinese demand for galvanized steel in building projects.
A key factor impacting zinc output in China is the country’s increasing environmental awareness. Poor air quality has forced the government to take a harder look at the mining industry as a contributor to pollution. If China curbs production of zinc to deal with this problem, then the country will be more reliant on imports. This could drive prices higher.
The London Metals Exchange (LME) keeps track of global stock levels for zinc and other industrial metals. Traders follow these inventory levels closely for clues about supply shortages or surpluses.
If inventory levels drop, the market may be facing a shortage of zinc supply in the near future. This could lead to higher prices for the metal. Similarly, if stockpiling occurs and inventory levels expand, then the market might face an oversupply of the metal, which can lead to lower prices.
One interesting development with base metals such as zinc is the increasing importance of inventories held at the Shanghai Futures Exchange (SHFE). Traders should monitor the change in zinc inventories at both exchanges for clues about zinc supply and prices.
Construction and infrastructure represent a very large percentage of galvanized steel demand.
The United States has not invested in major infrastructure projects in decades. If the government earmarks funding for new infrastructure projects, price for steel could move significantly higher. This would likely create increased demand for zinc and result in higher prices.
A strong US economy also increases demand for automobiles. Ultimately, the transportation sector is a very reliable barometer for galvanized steel and zinc demand.
Zinc occurs in ore bodies, and breaking down these ore bodies to extract the element expends energy. Mining and refining zinc requires ample supplies of coal, electricity and crude oil.
These costs can have a big effect on primary production. Similarly, the costs of scrap metal can impact the price of secondary production.
3 Reasons You Might Invest in Zinc
Investors should consider buying zinc for the following reasons:
- Bet on Strong Global Economy
- Inflation and Weak US Dollar Hedge
- Portfolio Diversification
Bet on Strong Global Economy
Expanding global demand for galvanized steel, zinc alloys, die casts and other zinc products could push prices higher.
For this scenario to occur, China would have to resume its strong growth. The Chinese economy has experienced a slowdown in recent years, although some signs suggest that the economy is strengthening again. Essentially, investing in zinc is a bet on a resurging Chinese economy.
A growing US economy could be another catalyst for higher zinc prices. Demand for galvanized steel for infrastructure projects and in the US automobile industry could be the catalyst for higher prices.
Inflation and Weak US Dollar Hedge
Investing in zinc is a way to bet on a weak US dollar and higher inflation.
Zinc is priced in US dollars, so the performance of the American economy can impact its price. The US Federal Reserve Bank has kept interest rates low and the US dollar weak for many years.
US central bankers are likely to continue these policies to support consumer borrowing and spending. These conditions are likely to be very beneficial for base metal prices.
A weak dollar could stoke inflation concerns. There is a limited supply of zinc, and producing it is an energy-intensive endeavor. The price of the commodity would likely benefit from fears of inflation.
Most traders have the vast majority of their assets in stocks and bonds. Commodities such as zinc provide traders with a way to diversify and reduce overall portfolio risk.
Should I Invest in Zinc?
Zinc traders should consider purchasing the commodity as part of a basket of commodities that includes other base metals (i.e., copper, lead, nickel, and tin), precious metals, agricultural commodities (i.e., dairy, meats and grains) and energy.
Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.
There are three specific trends that could raise zinc prices in the years ahead:
- Chinese Demand
- Infrastructure Demand
- Mining Challenges
China is the top consumer of zinc, and demand should grow if the Chinese economy rebounds.
The United States is expected to embark on major infrastructure projects over the next several years. Bridges, railways, airports and other projects require major upgrades. All of these projects will require significant amounts of galvanized steel. Zinc prices could benefit if these projects come to fruition.
Higher energy costs and pollution concerns make mining an increasingly challenging business. As fuel and electricity costs rise and China implements emission standards, more mining operations could close or consolidate. This could produce higher zinc prices.
However, traders should also consider the risks of investing in zinc:
A global recession could weaken Chinese demand.
Abandonment of infrastructure projects in China or the United States could depress demand for zinc.
Higher US interest rates and a stronger dollar could weaken commodity prices in general.
Expert Opinions on Zinc
Zinc prices have shown recent strength, but one analyst is skeptical about the sustainability of higher prices. She believes increases in supply and the likelihood that buyers will substitute other commodities for zinc could cause the rally to stall:
”Zinc supply is slowly coming back and the greater length of time zinc displays a large price disparity to aluminum the more likely we’ll see substitution.”
Macquarie analyst Vivienne Lloyd
However, another leading analyst believes that prices could remain high for a longer period of time:
“Prices will stay elevated because we have a market deficit that requires inventory drawdown. New supply and demand destruction due to zinc substitution will eventually rebalance the market, but that could take months, if not years.”
Societe Generale analyst Robin Bhar
How Can I Invest in Zinc?
Investors have several ways to gain exposure to zinc prices:
Zinc Trading and Investing Methods Compared
|Method of Investing||Complexity Rating (1= easy, 5 = hard)||Storage Costs?||Security Costs?||Expiration Dates?||Management Costs?||Leverage?||Regulated Exchange?|
Physical zinc bullion such as ingots is the most direct way to invest in zinc. However, investing in bullion requires a secure storage facility. Ultimately, the cost of this storage and the low value-to-weight ratio could make holding physical zinc an impractical proposition.
The Chicago Mercantile Exchange (CME) offers a contract on zinc that settles into 25 metric tons.
The contracts trades globally on the CME Globex electronic trading platform and have a variety of expiration months.
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery of zinc.
Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
These financial instruments trade as shares on exchanges in the same way that stocks do. ETFS Zinc (LN: ZINC) is an exchange-traded commodity that tracks the Bloomberg Zinc Total Return (previously DJ-UBS) Index.
|Bloomberg Zinc Total Return|
Shares of Zinc Companies
There are many publicly traded companies that have some exposure to zinc prices. While investing in companies can be a leveraged way to gain exposure to zinc prices, many of these companies have significant exposure to other metals and commodities prices. In addition, factors such as company management and the overall stock market can also affect these
CFDs allow traders to speculate on the price of zinc. The value of a CFD is the difference between the price of zinc at the time of purchase and its current price.
Some regulated brokers worldwide offer CFDs on zinc. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that trader can have exposure to zinc prices without having to purchase shares, ETFs, futures or options.
One of the leading brokers for trading precious metals, like zinc, is Markets.com, here’s why:
- No commission on trades (other charges may apply)
- Free demo account
- Easy to use (mobile-friendly) platform
- Industry-leading risk management tools
- Trade aluminium and hundreds of other markets
- Your funds are safe – publicly listed company regulated by the (FCA) UK’s Financial Conduct Authority, (ASIC) Australian Securities and Investment Commission and the (FSB) Financial Services Board South Africa.