Seeking Alpha
Profile| Send Message| ()  

By Eric

Zinc, also known as spelter, is a metallic element which is used all across modern communities. Aside from being an important industrial metal, the commodity is also an important mineral to the human body, as a zinc deficiency can cause major health problems. The metal is typically found with other base metals, like copper, and is also a founding component in the Earth's crust. Estimates of zinc resources total to approximately 1.9 billion tonnes worldwide, making this important metal an abundant resource. In fact, zinc is the fourth most popular common metal in use, with a global annual production of around 10 million tonnes. As an investment, zinc has steadily gained popularity as a way to play global markets due to the fact that this metal is so commonly used in not only the industrial world, but other aspects essential to everyday life.

Physical Properties and Uses of Zinc

Zinc occurs in five different isotopes in nature, with the metal being one of the most commonly used in the world. In fact, roughly 350 million tonnes of the metal had been extracted throughout history, and it is estimated that about one third of that still remains in active use today. Roughly 70% of the world's zinc comes from directly mining it, while the remaining amounts of the metal come from recycling secondary zinc. Producing this metal includes, extraction, grinding the ore to separate other minerals, and depending on what it will be used for, further processes may be used.

Zinc is most often used as an anti-corrosion agent, otherwise known as galvanization, which is the coating of iron or steel to protect against rust and other corrosive reactions. Approximately half of the zinc used worldwide is applied as a galvanizing agent. Galvanization is used on many everyday items such as chain link fences, suspension bridges, and car bodies. Zinc's anti-corrosive nature makes it ideal for use in batteries and other products that come into contact with sea water, such as pipelines. Zinc can also be used as a white pigment in paints, a heat disperser, a polymer to protect products from UV rays, and as a fire retardant. Aside from its common industrial uses, the mineral is also important to the human body, as zinc deficiencies can cause complications which lead to roughly 800,000 deaths per year.

Zinc Supply and Demand

The supply of zinc comes from various countries across the world. China leads the way, followed by Australia, Peru, United States, and Canada. The mineral is produced in a healthy mix of both emerging markets, as well as developed nations with more dependable government structures, meaning that this metal will not fluctuate quite as much as others who sometimes depend entirely on emerging markets for their supplies. Also, due to the fact that this metal is so widespread, its price will not see the dramatic shifts that other, less plentiful commodities may see. As mentioned above, a majority of the extracted zinc has remained in use, making this metal a more stable investment.

Zinc Price Drivers

As a global commodity, the price of zinc is impacted by a number of factors, and can be subject to significant price swings in a relatively short period of time, although less so than rarer metals. The major price drivers of zinc include:

  • Emerging Markets: Combined, both China and Peru account for roughly 43% of the world's zinc output, with other emerging markets like Mexico and India also producing a significant amount annually. Any kind of supply snags, or bad trade relations among these politically unstable nations can impact the price of this important metal. Also, with many emerging markets rapidly industrializing, this metal will be an important mainstay in the coming years, meaning that demand from these countries will spike and could account for a significant change in both prices and global consumption, especially in terms of exports from these emerging markets.
  • Health of Industrials: When recessions hit, industrials can often find themselves on the back-burner, as money is allocated to more immediate concerns, and new construction is often halted until economies stabilize. When this happens, industrials will subsequently fall, which could mean trouble for any zinc investments. But when economies are strong, and industrials flourish, zinc may reap the rewards from a thriving market sector.
  • Environmental Pressure: Zinc in excess can be bad for human health and the environment as outlined above. With the production of zinc comes the possibility of polluting the environment, causing unsafe drinking water or contaminated soil in some areas. Given the trends in recent years for companies to be more environmentally friendly, a regulation on zinc waste could put a damper on prices for this metal.

Investing in Zinc

Zinc's appeal as an investment comes from its widespread use in the industrial world to prevent rust and maintain equipment for longer periods of time. Below we outline several options for investing in zinc equities.

Physical Zinc

Though no option for physical zinc currently exists, ETFS recently filed for an ETF that will physically invest in the popular commodity.

Zinc Stocks

Investors can gain exposure to the metal through mining equities. Though many companies take part in mining zinc, the commodity generally makes up a small portion of their revenues, so finding exposure to the metal is not black and white, as most investments will have to be made through companies who rely on more than just zinc for their profits. These firms include:

Source: Investing in Zinc: A Guide