O'Reilly logo

Commodity Option Pricing: A Practitioner's Guide by Iain J. Clark

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

4 Base Metals

Base metals, as a term, generally refers in the commodity markets to non-ferrous metals used primarily in industrial applications – typical examples,1 as listed in Table 4.1, being copper, aluminium, zinc, nickel, lead and tin.

Table 4.1 The base metals.

Metal Atomoc number
Copper 29
Aluminium 13
Zinc 30
Nickel 28
Lead 82
Tin 50

While gold and silver have been used by humans from the very early days in civilisation, when copper was known largely for ornamental purposes, one can trace the large-scale usage of copper back to the Chalcolithic period, or Copper Age, a subepoch at the beginning of the Bronze Age (3300 BC to 1200 BC). Bronze, of course, is an alloy of copper and tin,2 while brass is an alloy of copper and zinc.3

We have seen already in Table 3.1 that the base metals are substantially cheaper than the precious metals. What this means, as discussed in Frankel (1997), is that the inventories of a certain value are voluminous and massive, and therefore prohibitively expensive to lease out for short periods to locations outside of a warehouse attached to an exchange. This is quite different to gold, which as we saw in Chapter 3 is very commonly leased out, e.g. by central bankers. The absence of the “stabilising effect of a lease rate market”, as Frankel puts it, means that spot and forward prices are far more decoupled than for the precious metals. Between 1995 and 1996, for example, the correlation between cash (spot) prices and ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required