Photo: markcoatsworth on Flickr
One group of commodities gets considerably less love than some of the headliners like oil, silver, and gold these days: non-precious metals.But they are just as important, if not more important than those listed above.
Presented here are 11 metals that are openly traded in futures markets, the names of which you probably have heard at one point or another but may not know much about.
We explain the major uses of each metal, parse current trends and issues in global supply and demand for each, as well as current market prices so you can get a feel for how they compare with each other.
Market price: $0.87/lb
Why it's important: aluminium production accounts for the largest share of metals production globally other than iron. Because it is regarded for its combination of durability and light weight, it is used for varied applications -- from parts in trains, planes, cars, and trucks to construction of buildings and other structures to items you might find in your kitchen like utensils and aluminium foil.
What you may not know: aluminium is the most abundant metal found in nature: it makes up 8.3 per cent of the earth's crust. According to Morgan Stanley, at the end of 2011, aluminium was priced '19.5% below the marginal cost, implying as much as 23Mt or around 45% of capacity was faced with negative cash flow.' The overabundance of aluminium produced in recent years has led to a sharp drop in the price per pound as production in emerging markets like China, India, the Persian Gulf, and Iceland continues to grow.
Market price: $3.34/lb
Why it's important: Copper has long been viewed by financial market observers as a bellwether for the global economy. Its biggest use is in copper wiring, the manufacturing of which is typically concurrent with construction trends. It's high levels of conductivity also make it useful in electronic circuits, which are becoming more and more common as more electronics goods are produced.
What you may not know: Copper is facing serious supply issues around the world at the moment. Morgan Stanley notes that the copper market recorded deficits (the amount of copper demanded in excess of the amount of copper produced) of 350 kilotons or more in both 2010 and 2011, and MS analysts say they 'fully expect this dynamic to deliver two more years of deficits in 2012 and 2013.'
Several unconnected factors are weighing on copper production around the world. Morgan Stanley writes:
Following a prolonged shutdown at the end of last year, the giant Grasberg mine in Indonesia spent weeks offline in 1Q as a result of more labour disputes. Elsewhere Glencore has been struggling in Central Africa after it was told to halt production from a plant at its Mopani copper operation in Zambia by the state environmental agency, while refined production from Glencore's Pasar smelter/refinery has been badly impacted by a fire which will keep the 215Ktpa plant out of production until mid-year.
Meanwhile, a (recently) booming China has been a major driver of copper demand. This combined with the aforementioned supply constraints has been a major contributor to the deficit in copper.
Market price: $0.85/lb
Why it's important: The U.S. Geological Survey's latest report on the lead industry shows that the biggest uses for lead are in batteries (specifically, car batteries) and ammunition, which is a distant second. Its low melting point relative to other metals makes it desirable in various casting applications (including casting ammo). In recent years, China has eclipsed the U.S. and Europe as the largest consumer of lead.
What you may not know: According to Morgan Stanley, 'winter is traditionally the peak season for lead because of replacement battery demand driven by cold weather.' Because of the warm weather experienced in many regions this past winter, short term demand for lead is down significantly.
Morgan Stanley also notes that China, the country that demands the most lead, 'electric bike (ebike) demand dominated lead demand in 2011 and although the growth in demand is expected to slow marginally it is still a market with impressive growth rates, particularly in the summer months.'
Market price: $7.27/lb
Why it's important: Nickel is used mainly in alloys like stainless steel, which makes it important for a wide range of infrastructure applications. It is known for its strength and durability, which lends well to these uses (it's also commonly used for armour plating). Furthermore, it is used for coinage, like the U.S. five-cent coin which takes its namesake.
What you may not know: High pressure acid leach (HPAL) processing is one of the main methods of extracting nickel. Morgan Stanley says that 'five new HPAL projects scheduled to come online in 2012-13' around the world could seriously shift the balance of the nickel market. The MS analysts say that 80 per cent of their forecasted nickel surplus comes from these five projects, which have been 'endemically slow' to come online -- meaning whatever happens with them will have important implications for the global supply, and therefore, price, of nickel.
Nickel mining, like copper, has also been subjected to political factors recently that are weighing on the market. Indonesia, one of the leading suppliers of nickel ore to China, announced in February that they would gradually implement a ban of ore exports, slated to be finalised by 2014. Many observers expect this to be a serious upside catalyst for nickel prices in the future.
Market price: $0.86/lb
Why it's important: Zinc is mainly used for galvanizing (rust-proofing) other metals. Like nickel, it is also used in alloys to create more durable metal products and is a primary component of brass and bronze. According to the U.S. Geological Survey, additional production from emerging economies like China, India, Mexico, and Russia is on the rise. Furthermore, the USGS explains that 'demand for zinc generally follows industrial production or, more generally, global economic growth.'
What you may not know: On the state of the market, Morgan Stanley analysts write:
Although refinery production growth rates are slowing, it will take several quarters to work through the record high level of inventories at current rates of demand, in our view. Although the supply-side response to oversupplied conditions has been broadly encouraging, we fear it may not be sustained given there is little economic incentive for producers to slow output as cash prices remain considerably above marginal production costs.
Also, although not representative of a major portion of demand for the mineral, zinc is widely used as a dietary supplement due to its antioxidant properties.
Market price: $1437/oz
Why it's important: Platinum, like other closely-related metals such as palladium and rhodium, is mainly used in catalytic converters to reduce toxic emissions from automobiles. Its second largest application is for use in jewelry. Given its rarity, it is also an important investment vehicle for commodity speculators.
What you may not know: The world's biggest platinum reserves are in Russia, Canada, and South Africa. Trade publication Miningmx notes that safety has been a serious concern in South African platinum mines, which have had to deal with several stoppages, 'with South Africa's platinum group metals output falling 19.5% year-on-year in January, according to data issued by Stats SA.'
Market price: $610/oz
Why it's important: Catalytic converters -- the part of an automobile that reduce the toxicity of exhaust fumes -- make the biggest use of palladium. Therefore, the market for palladium is very dependent on the autos market in general. The second largest driver of palladium demand is electronic circuits, where it can be used as an essential component.
What you may not know: Palladium is much rarer than gold (20x more gold was produced in 2010 than palladium). Also, because it is mainly produced in Russia and South Africa, relatively small changes in supply mean much bigger changes in price, because supply is so limited and there are relatively few producers.
Palladium is also one of only four metals (along with gold, silver, and platinum) that has an international currency code, which is used for cross-border payments and other applications in international finance.
Market price: N/A
Why it's important: If you're into ceramics or you prefer ceramic tile in your living space, zircon is important -- it's a primary input. China is the largest demand driver of zircon production at 40 per cent of world consumption, and according to a recent report by major producer Iluka, 'by 2020, China's zircon consumption could be greater than total global zircon consumption in 2010.'
What you may not know: Because zircon is primarily used in ceramic tiles and China is the leading consumer of the metal, 'floor area completion' in China is a closely watched leading indicator for the metal. However, generally soft economic conditions and an overabundance of zircon supply caused Goldman Sachs to recently call a top in the market, saying prices would only be maintained if miners had the discipline to restrict production adequately.
Market price: $2960/ton
Why it's important: According to the US Geological Survey, manganese 'has no satisfactory substitute in its major applications,' the major application of manganese being steel production. USGS also says that 85 to 90 per cent of all manganese produced is used for steel production. Because manganese is a strong oxidizer, it is essential in preventing steel from rusting.
What you may not know: According to the USGS, 'land-based manganese resources are large but irregularly distributed,' with 75 per cent of all un-mined manganese found in South Africa and 10 per cent found in Ukraine. Recently, a few major producers expanded output, bringing an additional 4.2 million tons per year of capacity to the world market even in the face of weakening demand.
Market price: N/A
Why it's important: According to the US Geological Survey, titanium dioxide is so widely used that consumption is linked with GDP in general. It's used as a white pigment in paint, paper, plastics, toothpaste, food colouring , and medicinal tablets. In addition, because it is highly refractive, titanium dioxide is a key ingredient in suntan lotion.
What you may not know: According to Morgan Stanley, titanium dioxide is 'typically co-produced with zircon despite different end uses (pigments not ceramics).' Furthermore, the titanium dioxide industry has withheld the secrets of production from China, and the Wall Street Journal recently reported on a case the FBI has brought against a spy ring that tried stealing the trade secrets from Dupont, a leading U.S. manufacturer, and bringing them back to China.
Market price: N/A
Why it's important: Rare earth metals are used across a wide range of applications, including as catalysts. They are also critical components of many high-tech products, from electronics like flat-screen televisions and radar systems to lasers, magnets, and fibre optic cables.
What you may not know: According to Morgan Stanley, for the last five years, China has produced 90 per cent of the world's supply of rare earth metals. They have been scaling back exports dramatically in recent years due to a desire to consume more of the rare earths they produce internally, causing problems for manufacturers of goods that use rare earths as inputs outside of China.
However, rare earths aren't only found in China, which only controls about 50 per cent of the world's reserves, according to Morgan Stanley. In the 1990s, China drove down prices of rare earth metals by flooding the market with extra supply and causing higher-cost producers to shut down. Now, with prices higher due to restricted supply out of China, those plants are being revived in other areas like the United States where rare earths once were produced. The catch is that this process takes time.
Also, unlike many other metals discussed here, rare earths are not traded on an exchange, meaning price data is available to a lesser extent.
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