NHYDY - How to Invest in Aluminum

Aluminum is a silvery white metal with a myriad of useful properties that make it a necessary component in many of our everyday products. Given that, aluminum investing  can offer exposure to growth in a number of market segments.

The base metal is non-toxic, corrosion resistant, has a high thermal conductivity and is the most abundant metal in the Earth’s crust.

Found in the minerals bauxite and cryolite,  aluminum was first extracted in 1825. Often aluminum is alloyed with other metals, such as copper , magnesium , silicon, tin , zinc and manganese.

Aluminum alloys are lightweight and strong, which makes them desirable for the construction of aircraft and spacecraft. An alloy of boron and aluminum is used for electric power cables for transmission lines, and the metal is also used to make cans, foils and kitchen utensils. Additionally, it can be deposited on the surface of glass to make mirrors.

If you’re interested in the aluminum industry, read on for a brief overview of the metal, from supply and demand to how to invest.

Aluminum investing: Supply and demand

China is the world’s largest producer of aluminum , but supply from the Asian nation has faced restrictions in recent years. But in recent years, the Chinese government has implemented anti-pollution policies that could put weight on the aluminum industry’s production activity.

China’s aluminum market is also facing external pressure in the form of ongoing trade disputes with the US. The two countries have been putting down back-and-forth tariffs on each other for a few years now. President Biden even reinstated former President Trump’s tariffs as one of his first trade moves in office.

According to FocusEconomics report from early October 2021, increased energy prices have prompted Chinese smelters to slash aluminum production (an energy intensive process) as cost-cutting measure. Not surprisingly, the cutbacks have led to increased aluminum prices at levels not seen in over a decade.

A Fortune Business Insights report shows that the global aluminum market is set to grow by a CAGR of 5.7 percent between 2019 and 2027 to reach US$242.44 billion. The biggest drivers of this growth are found in the packaged foods, aerospace, electrical and automobile industries.

According to the International Monetary Fund (IMF), aluminum prices will average US$2,276 per tonne in 2026, while the World Bank has predicted aluminum prices will average US$2,400/t by 2035.

A BCC Research report estimates that the aluminum alloys market will exceed US$40 billion by 2027. Global factors projected to contribute to growth in this segment of the aluminum market include increasing growing demand from the transportation sector, particularly for improving fuel efficiency in the air and automobile sectors. The metal is also an sufficient conductor of heat and electricity and is used in transmission lines, transformers and motors, making electrical applications another key driver of market growth.

What’s more, Research and Markets expects aluminum use in the global automotive industry to reach US$58 billion by 2026, with the Asia Pacific region as the largest consumer. Growth will be driven by increasing vehicle production, government emissions regulations and rising gas prices.

Aluminum investing: How to invest

If you’re curious about getting involved in aluminum investing, going directly through aluminum-focused companies is a straightforward way to start. Companies such as American aluminum firm Alcoa (NYSE: AA ) — which produces one-fifth of the world’s aluminum — and major Norwegian aluminum producer Norsk Hydro (OTCQX: NHYDY ,OL:NHY) are both viable options.

Elsewhere, companies like the Aluminum Corporation of China’s (NYSE: ACH ) have seen year-to-date gains. Similarly, Century Aluminum (NASDAQ: CENX ), which US Commerce Secretary Wilbur Ross identified as the sole producer of aluminum used for US fighter jets, has grown year-to-date.

China Hongqiao Group (HKEX: 1378 ), which is the world’s largest aluminum producer, and Rio Tinto (NYSE: RIO ,LSE:RIO,ASX:RIO), which has aluminum operations in eight countries, are other companies to consider.

Other options for investing in the aluminum industry include the iPath Series B Bloomberg Aluminum Subindex Total Return ETN (ARCA: JJU ), which is an exchange-traded note that delivers returns through a futures-based strategy.

In addition, ETF Securities offers leveraged and inverse aluminum exchange-traded products in European markets, along with traditional long-exposure funds. Exchange-traded funds such as ETFS Aluminium (LSE: ALUM ), which invests in firms mining and selling aluminum, are another option.

Finally, the London Metal Exchange offers aluminum futures contracts quoted in US currency per tonne with each contract representing 25 tonnes. The primary aluminum cannot contain impurities greater than in the registered designation P1020A in the North American and International Registration Record entitled “International Designations and Chemical Composition Limits for Unalloyed Aluminum.”

This is an updated version of an article first published by the Investing News Network in 2017.

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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.