Fortunately, the times when the aluminum price was higher than the gold price are long gone. Otherwise, aluminum profiles, aluminum tubes and the like would certainly not be so common. Although increasingly efficient methods have been developed to extract so-called primary aluminum, the processes are still very energy intensive. This effort ultimately has a strong impact on the price, because up to 17.7 kWh of electrical energy is needed to produce one kilogram. Compared to other industrial metals, aluminum is relatively light and very resistant to corrosion. This makes aluminum a popular industrial material. Typical areas of application for aluminum can be found in numerous industries, such as aerospace, automotive, medical technology, electrical engineering or mechanical engineering. Anyone who looks around in everyday life will notice the versatile material in numerous products, devices and other objects.
Aluminum important industrial metal
Aluminum is, next to copper, the most important industrial metal. Due to its low weight, it has become indispensable, especially in the manufacture of car parts, electrical conductors, aluminum windows and doors and packaging materials. Although aluminum is widely available in nature (it is the most abundant metal in the earth’s crust), its extraction is very labor-intensive because it must be obtained from very stable chemical compounds. An estimated 33 million tons of aluminum are consumed worldwide. The most important markets are the US, the EU and China, the most difficult extraction areas on our planet. And India can now be added to this list as an increasingly serious global player. In addition, India produces more than its own needs due to favorable resources and can therefore export surpluses.
The majority of commodities are not available to investors through the spot market (goods for money). Exceptions to this are precious metals. Gold, silver, platinum and palladium can be bought and sold on the spot market . For most commodities, trading is only possible in futures contracts. Suppose you want to invest in pork and you speculate on rising prices. If you were to buy this product on the spot market, the goods would be delivered to you. You then not only have high transport costs, but also high storage costs: after all, perishable goods must be kept refrigerated until final sale. This form of trading is therefore not successful with many raw materials. For these reasons, private investors will not want to buy and sell commodities on spot markets. Only producers, wholesalers and hedge funds are active on the physical commodity market. To expand the investment and trading instruments, trading in the form of futures contracts was developed.
London Metal Exchange (LME)
Aluminum trading takes place on the world’s largest metal exchange, the London Metal Exchange (LME), where aluminum is traded under the ticker symbol AH. For aluminum there is daily cash trading, three-month contracts and contracts with terms of up to 63 months. A futures contract covers 25,000 tons of aluminum at a minimum fluctuation level of 0.0005 dollar cents per pound, therefore $22.
There was a time when the price of aluminum had only one direction: up. After reaching a high of $2,706 per tonne in April 2011, the price had fallen back to below $1,600 by mid-2020. At first glance this is not easy to explain, because there is no question of a worldwide decline in demand. But in the same period the dollar has gained in value, for example against the euro. Aluminum is traded exclusively in dollars . When viewing price charts, one must therefore absolutely take the current dollar development into account.
As an industrial metal determined by supply and demand
As an industrial metal, aluminum is mainly subject to macroeconomic price fluctuations. The laws of supply and demand simply apply in that market . If there is less demand for aluminum from the industry as a result of lower production activity, this will put pressure on the price. As a speculation instrument, aluminum has so far been much less prominent, despite the occasionally very violent price movements. And logically, when the dollar is strong, major aluminum importers (such as German companies) also take a bit of care when making their purchases. All this pushes the price down even more. And there is simply no shortage of aluminum.
Recycling aluminum requires less effort
The recycling of aluminum also plays an important role: 40% of the raw quantity of newly produced aluminum parts, such as aluminum profiles, comes from aluminum scrap. Aluminum recycling is worthwhile in that it requires only 5% of the amount of energy used in primary production.
Silver is an excellent alternative as an investment
So those who saw aluminum exclusively as an investment may see another industrial metal such as silver as an excellent alternative. According to insiders, silver has considerably more profit potential as an investment instrument than, for example, gold. Gold is in high demand as a supposed safe haven due to inflation fears, but financial experts are convinced that the current gold rally is in its final phase.