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A Market Overview of Metal Commodities

March 15, 2018 by Daniels Trading| Futures 101

In commodity futures markets, gold, oil and corn typically grab the headlines, especially whenever there’s a surge in demand, concerns over supply or worries about political developments.

Meanwhile base metal commodities — such as copper, aluminum, zinc, tin and lead — are perceived by some investors as the dowdy cousins in the sector. But in reality, the metals, led by copper, are the workhorses of the global economy. They are often in tremendous demand, which also presents opportunities for the serious investor.

Nonferrous metals are found in relative abundance throughout in the world and are dug up and refined by a string of mining companies. But a strike or other supply issues at a major producer can sometimes spark panic in the markets.

Basic Training for Futures Traders

The ebb and flow of metal demand provides a great window into the health of the global economy. In the early to mid-2000s, for example, the price of copper surged as China’s economy boomed because the country needed to import more of the metal to feed its roaring industry. Copper, along with most other commodities, plunged during the 2008 recession as demand collapsed, however.

Despite being traded for centuries, copper, lead and tin are still the main building blocks for industry. Other metals, such as aluminum, zinc and nickel, are the relative newcomers but are crucial in a range of modern manufacturing processes.

Metal commodities are traded around the world, paced by the London Metal Exchange, or LME. They are also traded on the New York Mercantile Exchange, which is part of the CME Group, and the Central Japan Commodity Exchange.

Copper

Copper, known as the red metal, is said to be the first metal ever traded. Chile is the world’s biggest producer, and China is its biggest consumer. It may not be hoarded or prized like gold, but it is sought after because of the wide variety of applications for copper. The metal is a good conductor of electricity and does not corrode, making it ubiquitous in wiring, plumbing, generators, motors and cooling.

On the CME, copper’s contract size is 25,000 pounds and is traded in U.S. dollars per pound. On the LME, prices are in quoted dollars, per metric ton.

Aluminum

Aluminum is one of the most highly traded based metal commodities, and China is both a leading producer and consumer of the metal. The U.S. and Russia are also major producers of the aluminum.

A CME aluminum contract consists of 55,000 pounds and is quoted in dollars, by the pound. Aluminum, the third most abundant element on earth, is used in automobiles, planes, and in the housing sector.

Nickel

Nickel is a volatile commodity on global markets but is more thinly traded than the other base metals. Once again China is the dominant consumer for the metal, which is produced in several countries, including Canada, China, Australia and Russia.

Nickel is used for making stainless steel and other corrosion-resistant alloys.

Investor Education

Like any market, investors need to do their research and talk to professionals before trading in metals futures. It’s essential to know what is driving prices up or down, and each the metals can be moved by factors unique to its market.

The sprawling global metals futures sector is not for everyone due to the significant risks and rewards involved. Investors should always consider their full financial picture and seek professional advice before entering such markets. Contact us for a free consultation and expert advice about investing in metal commodities and other futures markets.

Basic Training for Futures Traders

Filed Under: Futures 101

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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