March 30, 2016 | The aluminum market has long been in surplus, and unless big changes are made an aluminum shortage won’t be coming anytime soon. … Read MoreGet Aluminum Stock Investor Kits
Aluminum is one of the most commonly used elements in the world, and for good reason – it’s malleable, lightweight, conductive and extremely resistant to corrosion.
Aluminum is used in everyday items such as pop cans, cookware and foil, but it has also found an increasingly important use in the transportation industry. Over a quarter of primary aluminum is used by western transport manufacturers.
In automobiles, aluminum is used in car bodies, bumpers, suspension mounts and dozens of other places. Aluminum is about five times more expensive than steel by weight, but is about 40 percent lighter. Manufacturers still rely on steel for components such as the chassis and the body, but for other parts, there is a clear tradeoff when it comes to using aluminum.
Perhaps more importantly, the metal makes up about 80 percent of the airframe of a modern commercial aircraft, and is a key component in aviation due to its lightweight strength. Aluminum is also an essential element in the construction of high-speed trains, subway cars, ships and rockets. The first satellite, launched in 1957, was also made of aluminum.
China was the number one producer of aluminum in 2014, according to the United States Geological Survey, followed by Russia, Canada, the United States and a number of other countries around the world. Production is expected to increase in 2015, but many market watchers and participants say that won’t be enough to reach demand.
Overall, a deficit is anticipated to send prices higher for the year. “The world, excluding China, will continue to be in short supply due to shut downs, production curtailments and strong demand in South America and North America,” one aluminum market participant told Reuters in a survey.
Aluminum production has been falling outside of China since 2012, Reuters stated in another article, having declined by 1.61 million tonnes over the past three years. The start of 2012 saw very low aluminum prices, which led producers to cut their output considerably.
As of now, production of the metal is still falling in South America. This trend is largely the result of conditions in Brazil, where high power prices and low prices for aluminum have made production much less cost effective in the country than it is elsewhere.
Investing in aluminum
Aluminum trades on the London Metal Exchange, the New York Mercantile Exchange and on other exchanges around the world, with prices and contracts being quoted in dollars per ton. Interested investors can set up an account with a broker who handles futures trading contracts in order to trade contracts for aluminum.
It should be noted that this type of aluminum trading has seen some controversy – 2013 saw the unveiling of an aluminum price-fixing conspiracy, alleging that Goldman Sachs (NYSE:GS) JP Morgan Chase and Glencore Xstrata (LSE:GLEN) had artificially inflated prices for the metal. Investors should do their own due diligence before dipping into those waters.
Investors can also buy shares of aluminum producers, or of bauxite mining companies, in order to gain exposure to aluminum. Bauxite is the precursor material for aluminum – it is refined into alumina, then processed at smelters to create aluminum.
Whatever one chooses, there’s definitely plenty of opportunity out there for those interested in aluminum investing.