JJU - Investing in the Aluminum Industry
Aluminum is a silvery white metal with a list of positive properties that make it a useful and necessary component in many of the objects we use in our daily lives. It is non-toxic and corrosion resistant, it has high thermal conductivity and it is the most abundant metal in the Earth’s crust.
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.
The metal is found in the minerals bauxite and cryolite and was first extracted in 1825.
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. In late 2016, the Chinese government implemented a five year anti-pollution plan that could put weight on 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 over a year now, with the most recent batch having been mutually introduced earlier this month.
According to the most recent Commodities Consensus Forecast report from FocusEconomics, an economic slowdown in China is also leading to weak demand dynamics for aluminum. Having said that, the report also noted that aluminum’s global market is set to remain in a deficit this year, with inventories tracked by the Shanghai Futures Exchange sitting at their lowest level since 2017’s first half.
FocusEconomics panelists forecast prices to average US$1,826 per tonne in Q4 2019, then grow to an average of US$1,911 per tonne by Q4 2020.
As aluminum supply tightens, demand from many sectors is poised to grow. A Global Market Insights report estimates that the aluminum alloys market will exceed US$150 billion by 2024. Global factors projected to drive demand and contribute to aluminum price gains include increasing air travel and growing construction and infrastructure projects in countries with emerging economies.
What’s more, Research and Markets expects aluminum use in the global automotive industry to reach US$42.4 billion by 2022, 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.”
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.