Lead & Nickel

4.8

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Unlike the other two base metals that we saw in the previous chapter, lead and nickel enjoy slightly lower levels of popularity amongst commodity traders. However, both of these metals are very important and play a significant role in the manufacture of an extensive range of products. As a matter of fact, you’d be hard pressed to find a product without either of these two elements in its composition. That’s how valuable these base metals are.

Now, let’s get right down to business and get to know more about lead and nickel trading.

Lead: An overview

Lead is a soft metal that is shiny and appears greyish blue in colour. It is one of the most easily available metals and is abundant in supply. One of the major advantages of lead is that it is completely recyclable. Since lead is extremely dense, it generally weighs much more than other comparable base metals. This is primarily why lead is so good when it comes to blocking radiation. Although dense, lead is soft, malleable, and resistant to corrosion.

In addition to being used in nuclear power plants to block harmful radiation, lead is also used in laboratories, hospitals, and in batteries. In fact, lead shock absorbers are used under buildings to dampen the effects of earthquakes. Here’s a fun fact for you. One of the earliest uses of lead can be traced back to the Roman empire, where it was used to manufacture pipes and vessels. However, there was a small problem. Lead, as we know it, is extremely toxic and can lead to poisoning of the body. And the Romans used to eat and drink off lead pipes and vessels, which invariably ended up killing them in the thousands.

Lead: Contract specifications

Now that you’ve gotten a good idea about the metal in general, let’s move on to the contract specifications to understand lead trading.

Particulars

Contract specifications

Lot size 

5,000 kilograms (5 MT)

Price quote

INR value per 1 kilogram

(includes taxes, duties, and other levies)

(excludes GST)  

Tick size

5 paise per kilogram

Contract expiry date

Last day of the contract expiry month.

If the last day of the contract expiry month falls on a holiday, the previous trading day would be the contract expiry date. 

Contract availability

5 contracts 

For instance, if you check the list of available contracts on the MCX website in the month of February 2021, you’re likely to find the following 5 contracts.

  • 26FEB2021
  • 31MAR2021 
  • 30APR2021
  • 31MAY2021
  • 30JUN2021

Maximum order size

1,00,000 kilograms (100 MT)

Delivery

Mandatory

 Let’s now take a look at the lead futures contract pricing from the MCX website. Here’s a snapshot.

The trading price of the futures contract of Rs. 172.35 in the snapshot above pertains to a kilogram of lead. Since each lot of lead futures consists of 5,000 kilograms, the total contract value for a lot comes up to Rs. 8,61,750 (Rs. 172.35 x 5,000). And so, in order to buy one lot of lead futures, you would have to put up a margin of around Rs. 96,356.

That said, here’s something that you should know before getting into a trade in lead futures. Unlike other metals, the price of lead usually tends to be quite stable and moves in a range-bound manner. With low volatility, the prices usually don’t make any big moves on  either side, which might end up capping your profit (and your loss).

Nickel: An overview

Similar to lead, nickel is also quite abundant in the earth’s crust. In fact, the silvery white metal ranks fifth in the list of the most common metals in the planet even though most of it is inaccessible. Its long-list of properties include corrosion resistance, ability to handle high amounts of heat, and a natural propensity for alloy formation.

Nickel easily forms alloys when combined with other metals, making it one of the most versatile metals in the world. Here’s a fun fact for you. There are more than 3,000 nickel-based alloys out there, which includes stainless steel. Yes, you read it right. Without nickel, there would be no stainless steel at all since it is a key component. More than 65% of the metal that’s produced goes straight towards the manufacture of stainless steel products. While the remaining 35% is used for other purposes such as plating, batteries, coins, and other electronics.

Nickel: Contract specifications

Let’s now move on to nickel trading and take a look at the contract specifications of the nickel futures contract in the MCX. Here’s a tabulated version with the relevant details.

Particulars

Contract specifications

Lot size 

1,500 kilograms (1.5 MT)

Price quote

INR value per 1 kilogram

(includes taxes, duties, and other levies)

(excludes GST)  

Tick size

10 paise per kilogram

Contract expiry date

Last day of the contract expiry month.

If the last day of the contract expiry month falls on a holiday, the previous trading day would be the contract expiry date. 

Contract availability

5 contracts

For instance, if you check the list of available contracts on the MCX website in the month of February 2021, you’re likely to find the following 5 contracts.

  • 26FEB2021
  • 31MAR2021 
  • 30APR2021
  • 31MAY2021
  • 30JUN2021

Maximum order size

24,000 kilograms (24 MT)

Delivery

Mandatory

Okay so, now that you’ve gotten the hang of the contract specifications, it is time we moved onto the pricing part. Here’s a snapshot from the MCX website. 

As you can see, the current price at which the futures contract of nickel is trading is Rs. 1,368.30, which pertains to a kilogram of the metal. With a single lot of the futures coming up to 1,500 kilograms, the total contract value would then be Rs. 20,52,450 (1368.30 x 1,500). Therefore, the margin that is required to initiate a long position in the nickel futures contract would approximately be Rs. 2,29,786. 

Compared to other base metals, the margin for nickel is significantly on the higher end of the spectrum. And so, the number of retail trader participation in the counter is likely to be lower.   

Wrapping up

And that’s about it for the base metals segment of the commodities. In the next chapter, we’ll be moving on to agri commodities like cardamom and mentha oil. Stay tuned to find out more about these two exciting commodities.

A quick recap

  • Lead is a soft metal that is shiny and appears greyish blue in colour. It is one of the most easily available metals and is abundant in supply. 
  • One of the major advantages of lead is that it is completely recyclable. 
  • There is only one lead derivative contract available for trading on the exchange.
  • The lot size of the lead contract is 5,000 kilograms.
  • At any given time, there are 5 types of lead derivative contracts available to trade.
  • Similar to lead, nickel is also quite abundant in the earth’s crust. In fact, the silvery white metal ranks fifth in the list of the most common metals in the planet even though most of it is inaccessible. 
  • The minimum lot size for nickel futures is 1,500 kilograms.
  • At any given time, there are 5 types of nickel derivative contracts available to trade.
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