To invest in aluminum

Unlike other metals, the history of aluminum does not go down in history for thousands of years.. Although aluminum salts were used in ancient Greece and Rome to make paints and heal wounds, only in 19 century it began to be limited to use for the manufacture of a small number of luxury items and expensive jewelry.

Aluminum is not highly attractive to gold and silver, it is not used to protect against inflation and deflation. However, aluminum follows the changes very tightly, that occur in the surrounding life and leading industries, which makes its price movements more predictable, than for precious metals.

Below we will consider the features of investing in aluminum..

Primary aluminum

Since aluminum does not exist in nature as a pure element, the aluminum industry cannot just dig it out of the ground and sell it to end users. Therefore, bauxite mining is at the heart of the aluminum industry.. Fortunately, bauxite deposits are in the form of layers near the earth's surface, and therefore bauxite is mined in an open pit. Then white powder is obtained from bauxite, which is known as alumina. To turn alumina into aluminum, it is subjected to intense heating and a large amount of electric current is passed through it.. This process is called aluminum electrolysis or aluminum smelting..

The process of mining bauxite and converting it to aluminum requires a large investment of capital, since the construction of aluminum smelting plants requires a significant amount of money. Moreover, smelting aluminum requires a lot of electrical energy, that is why many aluminum plants are located in or near hydroelectric power plants, or an aluminum producer builds its own power plants to reduce costs.

The largest aluminum producing countries

Around the world, about 60 million tons of aluminum. This is the second largest metal market in terms of production after iron and steel. The largest aluminum producers among countries are:

  • China
  • Russia
  • Canada
  • USA
  • UAE.

The largest aluminum producing companies

Aluminum Corporation of China (Chalco). The world's largest Chinese manufacturer

  • bauxite;
  • alumina and
  • primary aluminum.

The company is also engaged in the production and sale of aluminum alloy products., graphite products and other materials for aluminum electrolysis.

Hongqiao Group. China Investment and Holding Company China Hongqiao Group Limited. The main areas of activity are the production and sale of:

  • molten aluminum alloys
  • ingots from aluminum alloys
  • foundry and rolled aluminum products
  • aluminum busbars,

as well as exploration, development and trade of bauxite, production and sale of electrical energy, provision of leasing financial services.

Rusal. Russian company Rusal is engaged in the production and sale of primary aluminum and other products related to aluminum smelting., as well as the extraction of bauxite and the production of alumina. The company has 10 plants for smelting primary aluminum, of which nine are in Russia and one in Sweden. The main activities of the company are:

  • mining and processing of bauxite and nepheline ores into alumina
  • smelting of primary aluminum alumina
  • processing of aluminum and aluminum alloys into semi-finished and finished products.

Xinfa Group. The company mainly produces and processes primary aluminum and other related products. Xingfa Aluminum is one of the oldest aluminum extrusion manufacturers in China.. This enterprise is a major manufacturer, specializing in the production of construction and industrial aluminum profiles.

Rio Tinto. Rio Tinto Aluminum is a division of Rio Tinto, a multinational mining company headquartered in Montreal, Canada.. Rio Tinto mines ores and produces metals, including iron ore, aluminum, copper and diamonds, electricity generation. The company has 24 production sites around the world. Aluminum products include sheet rolling ingots, extrusion ingots, pokrovki and more.

Alcoa. Alcoa is one of the world's leading bauxite producers, alumina and aluminum products. Headquartered in Pittsburgh, Pennsylvania (USA). The company does business and has manufacturing facilities in ten countries around the world. Alcoa has the world's largest bauxite production, one of the largest alumina production systems, as well as a global network of primary aluminum smelters.

The role of the aluminum industry in the economy

What is the impact of the aluminum industry on the economy? for instance, the US aluminum industry annually brings about 170 billions of dollars. This amounts to about 1 % from the US annual gross product. Near 160 thousands of workers are directly employed in this industry. Moreover, every job in the aluminum industry creates at least 3 jobs in related industries. In total, this is about 700000 jobs in production, processing and application of aluminum. These workers bring home more than 40 billions of dollars, which support the development of many other sectors of the economy.

Three segments of the aluminum industry

The aluminum industry can be divided into three main segments - three streams:

  • Upstream: Mining of bauxite, alumina production and primary aluminum smelting.
  • Midstream: Converting primary aluminum into technological semi-finished products for further production of finished aluminum products. for instance, rolled aluminum sheets, which are sold to car manufacturers.
  • Downstream: Manufacturing of finished aluminum products, for example, aluminum alloys for the manufacture of rims, which are about two times lighter than steel.

Transport is the driving force behind the aluminum industry

There are a large number of target market niches and industries, who consume aluminum, including aerospace, automobile production, packaging of products and goods, construction.

However, the industry, which is really driving the aluminum industry forward today, is transport engineering. This industry is sharply focused on reducing fuel costs and one way to do this is to reduce vehicle weight.. Since similar aluminum structures on 10-40 % easier, than steel while maintaining strength, then this metal is capable, for example, with weight loss 15 % reduce fuel consumption by 7-20 %.

Automobile production

Governments around the world are setting increasingly stringent CO2 emission standards for cars. S 2010 by 2020 average carbon dioxide emissions should have dropped from 142 g / km to 95 g / km, that is on 3,9 % annually.

Aluminum is able to reduce the weight of the corresponding part by more than 50 % compared to competing materials. For niche models with an all-aluminum body, the weight savings are up to 30-40 %, from 70 by 140 kg depending on the size of the car.

Major American automakers, like Ford and troublemakers, such as Tesla, focused on aluminum applications, to reduce the weight of their vehicles for improved performance and safety. The well-known American CAFE industry standards require an increase in the period from 2011 by 2025 year of run for 1 liter of fuel not less, than twice. Therefore, car makers have virtually no other choice., as soon as you reduce the weight of your vehicles. Aluminum will play a major role in this challenge.

Electric cars

Electric cars are currently quite expensive, mainly due to the high cost of batteries. This is why it is important to make electric cars as energy efficient as possible.. Losing weight is one of the most obvious ways to improve the energy efficiency of any vehicle., including, electric cars.

Material, which is used for weight loss, is often slightly more expensive, heavier classic materials. established, that an electric VW Golf class car can be made on 184 kg lighter, if aluminum is used instead of steel. The total cost of an aluminum electric car would be 635 less euro, than steel electric car.

Moreover, life cycle analysis of all steel and all aluminum electric vehicles shows, that aluminum electric cars emit greenhouse gases during their life cycle 1,5 tons less, than steel electric cars. This life cycle includes manufacturing, mileage 150000 km and recycling.

Aerospace

Aluminum is also a very important metal for the aerospace industry.. Its ability to provide light weight to aluminum structures helps reduce aircraft weight, which enables airlines to save money on jet fuel. Since jet fuel is the main cost for air carriers, this pushes them to continue looking for ways to reduce the weight of passenger aircraft. It means, that it is necessary to continue replacing heavy components with lighter ones made of aluminum alloys.

How to invest in aluminum

Aluminum Futures

A futures contract (futures) is a guaranteed trade in the future for a certain number of units of a commodity at a certain fixed price. This price is called the strike price or delivery price.. Goods are delivered and payment is due on a specific delivery date. for instance, on the New York Mercantile Exchange, NYMEX) one futures controls about 20 tons of aluminum. High price volatility is characteristic of aluminum futures, which makes trading aluminum futures very risky.

ETF

The abbreviation ETF stands for "Exchange Traded Fund" - "Exchange Traded Fund". Such a fund consists of hundreds or even thousands of shares of different companies., collected on any basis. Investing in ETFs is buying a share of the fund, who owns the assets, for example, stocks or raw materials. Anyone can buy shares of such a fund..

Trading ETFs has significantly lower risk, than trading aluminum futures. Some funds offer a combination of several aluminum futures in one exchange note. Others offer a range of aluminum, copper and zinc in one investment basket. There are such ETFs, who invest in primary aluminum production worldwide.

The most popular ETFs in the aluminum market are [5]:

  • iShares Dow Jones U.S. Basic Materials Sector Index Fund (IYM)
  • iPath Dow Jones-UBS Aluminum Subindex Total Return ETN (JJU)

Aluminum producers' shares

Investing in aluminum producer stocks can be more attractive to people, who are not prone to excessive risk. After analyzing all the strengths and weaknesses of each investment option, a company is chosen, which corresponds to specific investment plans. The most profitable shares of companies in the aluminum industry currently include the shares of the following companies [6]:

  • Century Aluminum Company. holding company, which is a primary aluminum producer.
  • Alcoa Corporation. Produces and sells bauxite, alumina and aluminum products.
  • constelle N.V. Designs and manufactures aluminum products for various segments of the aluminum market, including aerospace, automotive and packaging.
  • Aluminum Corporation of China Limited. Aluminum producer, including bauxite mining, alumina production and primary aluminum smelting.
  • Kaiser Aluminum Corporation. Refers to the recycling sector of the aluminum industry. Produces rolled, pressed and cold drawn semi-finished products for aerospace, defense, automotive, engineering, electronic and electrical industries.

Dividends

Dividends are payments, which companies pay to their shareholders. Payment of dividends is optional, but many companies do it. . Dividends can be paid quarterly, annually or every two years.- it depends on the policy of each individual company.

Large corporations with a long history of financial stability and low stock price volatility are more likely to pay dividends, as they have sufficient capital, to smooth out adverse market fluctuations.

There are joint stock companies, including in the aluminum industry, who do not pay dividends or pay them very rarely. Companies with rising share prices often pay no dividends and prefer to reinvest profits back into production, counting on, that earnings from rising stock prices will be higher, than from the payment of dividends. This also applies to young companies, who do not yet have a recognized, "Branded" product and focused on the development of innovative products, which may (or may not) be able to profitably "shoot" in the future.

Track and monitor

  • Every aluminum investor must constantly monitor new directions and changes in the aluminum industry, as well as the dynamics of the economy as a whole, to understand in time, when aluminum prices are ready to rise.
  • Aluminum stock trading is highly cyclical and commercially more complex than other metals. Therefore, it is necessary to constantly monitor the state of stock trading in aluminum and be sure to have a ready-made plan for a quick exit from it in case of an unfavorable market situation..

Sources:
1. Aluminum Nation – https://www.aluminum.org/
2. Driving Modern Manufacturing – The Aluminum Association – 2020
3. Aluminium in Cars – Unlocking the Light-Weighting Potential – European Aluminium Association – 2020
4. How to Invest in Aluminum / Karen Rogers – https://finance.zacks.com/invest-aluminum-5655.html
5. Aluminum: Investing Essentials – An investing primer on the aluminum industry /Matthew DiLallo - https://www.fool.com/investing/general/2014/08/07/aluminum-investing-essentials.aspx
6. List of Aluminum ETFs – https://fknol.com/etf/list/aluminum.php
7. Top Aluminum Stocks With Highest Returns – https://fknol.com/list/best-performing/aluminum-stocks.php