What Are Base Metals?

Base metals are common metals that tarnish, oxidize, or corrode relatively quickly when exposed to air or moisture. They are widely used in commercial and industrial applications, such as construction and manufacturing. Base metals include lead, copper, nickel, and zinc. They are often more abundant in nature and sometimes easier to mine. That makes base metals far less expensive for use in manufacturing than precious metals, such as gold, silver, and platinum.

Key Takeaways

  • Base metals are common metals that tarnish, oxidize, or corrode relatively quickly when exposed to air or moisture.
  • Base metals include lead, copper, nickel, and zinc.
  • They are often more abundant in nature and sometimes easier to mine, so their prices are generally lower than precious metals.
  • Base metals are frequently used for industrial purposes.

Understanding Base Metals

The term base metals likely arose because these materials are inexpensive and more commonly found than precious metals, such as gold and platinum. However, base metals are invaluable to the global economy because of their utility and ubiquity. Copper, for example, is a leading base metal that is often called the "metal with a Ph.D. in economics" or "doctor copper."

Movements in the price of copper can provide information about the health of the global economy due to its widespread use in construction. Economists sometimes use copper prices as a leading indicator of global economic growth. If the demand for copper is growing and prices are rising, then the global economy may be improving. Conversely, a fall in the price of copper can provide a warning that economic activity is slowing in crucial areas of the economy, such as homebuilding.

Advantages of Base Metals

The primary advantage of base metals is that they are relatively inexpensive. Base metals serve many purposes, such as construction, as well as or better than precious metals. What is more, some base metals have unique properties that cannot be duplicated by other metals. For example, nickel is one of the major components of stainless steel. Zinc goes into galvanizing steel as a protection against corrosion. The Roman Empire used lead for many purposes, including pipes, bathtub linings, cosmetics, and paints.

The primary advantage of base metals is that they are relatively inexpensive.

Disadvantages of Base Metals

Base metals suffer from several significant drawbacks, all of which make them less suitable as currencies than precious metals. The first disadvantage is that they are usually not valuable enough to be a compact store of value. For example, lead was selling for less than one U.S. dollar per pound in 2019. Having to haul 50 pounds or more of lead to the store to buy groceries was always impractical, while gold and silver coins worked well. As late as the 1960s, many U.S. coins still contained silver.

The other notable disadvantages of base metals are their chemical properties and price volatility. Because they oxidize and tarnish more easily, base metals make much less durable currencies. It is common to find corroded pennies in the United States that are only a few decades old. They corrode so quickly because they are mainly composed of the base metal zinc. On the other hand, gold coins from thousands of years ago are often still in relatively good shape. The prices of base metals are also usually more volatile because of their widespread use for industrial purposes. When industrial demand dries up, the prices of base metals can plummet.

Base Metals Futures Contracts

Several exchanges around the world offer contracts to trade in base metals, but the hub of international trading remains the London Metal Exchange (LME). In the United States, the Chicago Mercantile Exchange (CME) offers base metal futures contracts. CME says the physically delivered futures contracts are designed to meet the needs of the evolving international marketplace. They provide a cost-competitive vehicle to manage price risk for the whole value chain. These base metal contracts are designed to compete with those offered on the London Metals Exchange.