MCX Launches 3 New Mini Contracts of Aluminium, Lead and Zinc

The Multi-Commodity Exchange of India has introduced the Aluminium Mini, Lead Mini and Zinc Mini futures contracts. These futures contracts will basically have a much smaller minimum lot size value in order to enable smaller traders and industries to either trade these goods or hedge their supplies of these goods respectively. 

Launch dates of the mini contracts – 

Benefits of metal mini futures

The following are some of the benefits for you that will come from launching the aforementioned contracts – 

1. You as a commodity trader can now place lower levels of bets on the same products – this will reduce the level of exposure to risk that your investment has. 
2. It will allow you to further diversify your portfolio at the same level of capital investment. 
3. Your commodity portfolio in these metals will now be easily modifiable as per market dynamics – e.g. with lower lot sizes, you can now buy 5 lots with the same money with which you could earlier buy only 1 lot of a metal future. Therefore, if the price changes, you can choose to buy/sell only a portion of your total investment in the metal instead of the entire investment.
4. This will create greater liquidity in the market (as a greater number of traders will be trading in these futures and therefore a greater number and variety of contracts will be available to you, the average trader, to pick and choose from). Therefore you will see increased investment in these products, allowing their prices to rise or at least reach a more correct, market-based level.
5. Small and medium enterprises that use these metals can also reduce their risks related to price of their raw materials more easily as now they can afford to buy futures of these metals in lower quantities.

The common factors that are true for all three mini contracts are – 

Now let us look at the features of these individual future contracts.

Aluminium Mini

Industry use – Aluminium as a metal is used widely in the following industries – 

1. Transport – Especially in building of aeroplanes
2. Consumer goods – Electronics and utensils
3. Architecture – Because aluminium is both strong and lightweight, it is used in making certain portions of buildings, apart from the goods mentioned above.
4. Electrical – Aluminium is useful in constructing long distance power lines because it is ductile and resistant to corrosion.

Introducing Aluminium mini contracts will help smaller players to use such derivatives to hedge the price risk of their raw materials as the lot size of the mini contracts is only 1 metric ton, compared to the 5 metric tonnes of the standard futures contract.

The following are some of the key details relevant to you regarding aluminium mini contracts – 

Lead mini

Industry use – Lead is widely used for manufacturing of car batteries, pigments, ammunition, cable sheathing, weights for lifting, lead crystal glass, radiation protection and some types of solders. This means it can be used as a raw material for both large industries as well as by small enterprises in the unorganised sector.

Therefore, in order to benefit the smaller businesses, the MCX announced the launch of Lead Mini Futures contracts with effect from Wednesday, February 22, 2023. The minimum lot size of the new mini contract is 1 metric ton while the normal lead future contract has a lot size of 5 metric tonnes. Therefore, smaller enterprises can now also easily hedge their raw material supply risks using the Lead mini futures.

The following are some of the important details of the new contracts –

The following are the important dates for you of the lead mini futures contracts introduced (only the nearest 4 are mentioned, though there are more post-February every month till at least December) –

Based on circular no. MCX/T&S/082/2015 dated 19th March, 2015, the LTP based spread trading facility will also be available in combinations effective from Wednesday, February 22, 2023 (trading allowed only till 5:00 p.m. on the date of expiry of the contract).

Zinc Mini

While the zinc mini contract is almost exactly the same as the existing zinc contracts, the former have a minimum contract size of 1 metric ton (in contrast to the latter which has a lot size of 5 metric tonnes). Therefore, it can be expected that the price of the zinc mini contract will probably be roughly one-fifth of that of the existing zinc contracts – thus helping SMEs who use zinc as a part of their raw materials to more easily hedge their supply chains with lower leverage.

Industry use – Zinc has a major use case in the galvanising industry, i.e. for putting protective coats on steel – therefore, its demand strongly varies as per the demand for steel, an industry that has both big and small players.

It can also be noted here that the average daily volume of trade in zinc futures is around 140,000 tonnes on the MCX. It remains to be seen what share of the zinc trade shifts to the zinc mini contracts.

The following table shows some of the key details of the new Zinc mini contract – 

For zinc mini, the contract launch date is on 17th February, 2023 and the contract launch months vary from February till up to December 2023.

What is MCX

MCX or the Multi-Commodity Exchange of India is India’s largest commodity derivatives exchange located in Mumbai. Established in 2003, it was earlier regulated by the Forwards Market Commission until the latter merged into the SEBI. In 2012, it became India’s first publicly listed exchange. You can trade commodities  including metal, bullion, agricultural commodities and energy derivatives on MCX.

Final words

Commodity futures are not just hedging instruments for industries but also instruments for speculation by traders. If you wish to invest in some of the above commodity futures then open demat account with Angel One, India’s trusted online broker.

Disclaimer: This article has been written exclusively for educational purposes. The securities quoted are only examples and not recommendations.