Base Metals

DEFINITION of 'Base Metals'

Base metals are widely used in commercial and industrial applications such as construction and manufacturing. They are broadly defined as metals that oxidize, tarnish or corrode relatively easily when exposed to air or moisture and are often more abundant in nature and sometimes easier to mine. Most importantly base metals are what specialists call "nonferrous", meaning they contain no iron. This also makes them far less expensive for use in manufacturing than precious metals such as gold, silver and platinum that are more rare and can require significant mining resources to extract in any meaningful quantity. Base metals include aluminum, copper, lead, nickel, tin and zinc.

BREAKING DOWN 'Base Metals'

While the term "base metals" probably arose because these materials are inexpensive and more commonly found than precious metals such as gold and platinum, 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" because its tells you the "health of the global economy" due to its widespread use in construction that makes its price very sensitive to global economic trends. Economists sometimes use copper prices as a leading indicator for global economic growth forecasts. If demand for copper is growing and prices are rising, this can signal an uptick in economic activity. Conversely a fall in copper prices can be a hint that economic activity in key areas of the economy like home building is slowing.

Base metals are often known as the building blocks of infrastructure because they are so widely used in everyday products. For example, nickel is one of the major components of stainless steel, while zinc goes into galvanizing steel as a protection against corrosion. One of the earliest metals discovered by humans was lead. According to The Balance, in Turkey, some lead statues date all the way back to 6,500 BC, and the Roman Empire used lead for many purposes including pipes, bathtub linings, cosmetics and paints and even for food and wine vessels.

Base Metals Futures Contracts

There are several exchanges around the world that offer contracts to trade in these base metals, but the hub of international trading remains the London Metals Exchange (LME). ​In the United States, the CME Group now offers base metal futures contracts. CME says the physically-delivered futures contracts are designed to meet the needs of the evolving international marketplace by offering a cost-competitive vehicle to manage price risk for the whole value chain. These base metal contracts are designed to compete with the dominance of the LME.