Wall Street Journal  Oct 17  Comment 
Signature Group agreed to buy aluminum-recycling business Global Recycling and Specification Alloys from Aleris Corp. for $525 million, aiming to take advantage of an expected increase in aluminum demand from auto makers.
TheStreet.com  Oct 17  Comment 
NEW YORK (TheStreet) --aReliance Steel & Aluminum was upgraded to "buy" from "hold" at Topeka Capital on Friday. The firm said it raised its rating on the North America metals service center company following the recent pullback in shares. "We...
Automotive World  Oct 16  Comment 
Novelis, the global leader in aluminum rolling and recycling, announced today that consistent with its corporate strategy it will focus its operations in Brazil on its core business of aluminum rolling and recycling.   As a result, it will...
The Australian  Oct 16  Comment 
BHP Billiton confirmed it would seek a London listing for the spin-off of its aluminium and manganese assets.
Market Intelligence Center  Oct 15  Comment 
Reliance Steel & Aluminum Co (RS) presents a trading opportunity that offers a 3.68% return in just 66 days. A covered call on Reliance Steel and Aluminum at the $60.00 level expiring on Dec. '14 offers an assigned return rate of 3.68% or 20.36%...
USAToday.com  Oct 15  Comment 
The truck with the aluminum body wins
Commodity Online  Oct 15  Comment 
The light weight metal industry has been suffering from oversupply since 2007, mainly due to large capacity increases in China and the Middle East. Prices have been falling since 2011, leading to shutdown of smelters.




 
TOP CONTRIBUTORS


At roughly 1/3 the weight of an equivalent volume of steel, aluminum is lightweight yet strong enough for a wide range of uses. It is a good conductor of heat and electricity, resistant to corrosion, and non-toxic, making aluminum suitable for a variety of industries. Major markets for aluminum include various consumer and commercial end markets such as transportation, construction and building, and packaging.

Due in part to its presence in several other markets, aluminum prices are subject to various external forces as well as other markets' conditions. Changes in the industries that use aluminum in their products can have a significant impact on the aluminum industry itself. In addition, many of the end uses of aluminum involve the production of durable goods, which tend to fluctuate cyclically with changes in general macroeconomic conditions. The 2008 Financial Crisis and global slowdown in early 2009 has destroyed demand for many durable goods, causing aluminum's price to fall approximately 50% from mid 2008 to early 2009.

The final product of a three-stage production process, aluminum is made from an oxidized form of aluminum called alumina, which is in turn sourced from bauxite, a naturally-occurring source of alumina. Companies in the aluminum industry are generally involved with only one of the three stages of production, though some larger companies handle multiple stages in-house.

Prices, Tickers, and Delivery Dates

Aluminum futures contracts are traded on the New York Commodities Exchange under ticker symbol AL. Futures contracts are delivered in every month of the year. (For more information on commodity tickers, check out the ticker construction page.) Futures and traded average price options are also traded on the London Metal Exchange LME as well as other exchanges across the world.

Why aluminum prices rise and fall

U.S. aluminum shipments by end market (%), 2004
U.S. aluminum shipments by end market (%), 2004

Transportation Industry

Among developed countries, transportation is the single largest end market for aluminum. Changes in demand for automobiles, airplanes, commercial trucks, etc., can impact aluminum prices significantly.

Automobiles used to be made almost entirely of steel, but new passenger cars and light trucks now contain an average of 300 pounds of aluminum, a significant increase from fifteen years ago. Foreign car manufacturers have been quick to increase their use of aluminum, while the "Big Three" domestic auto companies Ford Motor Company (NYSE:F), General Motors (NYSE:GM), and Daimler Chrysler (NYSE:DCX) have been slower to trade steel for relatively more expensive aluminum, focusing instead on cutting costs and prices. On the whole, though, the auto industry's demand for aluminum is trending upward, which could cause aluminum prices to rise as well.

In the aerospace industry, aluminum has long been used to construct airplanes and helicopters, though there has been a recent rise in the use of carbon fiber composite materials. These composites are lighter than aluminum, stronger than steel, and much easier to assemble, a combination that poses a threat to aluminum's dominance in the aerospace industry. Airplane manufacturers have announced plans to build models composed of as little as 20% aluminum by weight, a significant decrease from the 50% of previous models. The rise of carbon fiber composites in aerospace manufacturing could decrease demand for aluminum and put downward pressure on prices.

Construction Market

The building and construction market accounts for a significant portion of the total demand for aluminum. In developed nations, around 15-20% of all aluminum produced goes to the construction end market, while this figure is higher in developing countries at around 30%. For residential construction, aluminum is commonly used in doors, roofs, and structural framing, while aluminum is used primarily for structural applications in the nonresidential market. Surges in residential or commercial construction can increase demand for aluminum, resulting in higher prices, while housing slumps or slow nonresidential construction can lead to lower aluminum prices.

Emerging Markets

The amount of aluminum consumed per capita is highly correlated with economic development. People in developed countries consume an average of 50-70 pounds of aluminum per year, whereas people in developing countries (countries with a per capita GDP of less than $10,000) consume less than 20 pounds per year, on average. As emerging countries become more developed, aluminum consumption in these countries will likely increase significantly. Considering the size of developing countries such as China and India, these emerging markets could cause substantial increases in both aluminum demand and prices.

Energy Costs

Energy costs can impact the aluminum production process. Smelting alumina into aluminum requires a constant, large supply of electricity, which accounts for around 25% of the costs of the entire smelting process. If energy costs become too high, smelters may be forced to shut down or move to a location where energy costs are lower. On the other hand, a decrease in energy costs can allow previously closed smelters to reopen, which would increase the supply of aluminum and lower prices.

Companies that benefit from falling aluminum prices

  • Coca-Cola Enterprises (NYSE:CCE) and the Pepsi Bottling Group (NYSE:PBG) both use aluminum to make cans for their beverages. Aluminum represents around 15% of CCE's production costs and 20% of PBG's. A decrease in the price of aluminum would lower their total costs of production, which could translate to higher profit margins.
  • Third party manufacturers of beverage cans include Ball (BLL) and Amcor (AMCR). Firms like these depend on stable, long-term agreements with beverage companies, and these contracts allow flexibility for the supplier to pass production costs onto the buyer. There is typically a lag, however, between a price increase in aluminum and adjustment of the contract - and during this period, can manufacturers' profits suffer.
  • Toyota (NYSE:TM) and Nissan (NasdaqCM:NSANY), and to a lesser extent other companies like General Motors, Ford Motor Company, Daimler Chrysler, and Volkswagen (XETRA:VOW.DE), stand to benefit from falling aluminum prices. All automobile manufacturers use aluminum, though Japanese-made cars tend to contain a higher percentage of aluminum than the industry-wide average of 13% by weight.[1] Falling aluminum prices would lower auto makers' production costs, and the savings could either be kept as profits or reinvested in the company.
  • Boeing (NYSE:BA) and Airbus (Paris:EADF5.PA) both manufacture airplanes, which require large amounts of aluminum. Aluminum has traditionally been the primary material used to build airplane bodies, though composites are becoming more widely used by aerospace companies. Aluminum can compose up to 50% of an airplane's weight, so a decrease in aluminum prices could substantially lower aerospace companies' production costs.

Companies that benefit from rising aluminum prices

  • Alcoa (NYSE:AA), Alcan (NYSE:AL), Rusal, and the Aluminum Corporation of China (ACH) stand to benefit significantly from rising aluminum prices. These large companies are involved in aluminum production from bauxite mining to final aluminum smelting. Other companies in the aluminum industry are generally concentrated in only one of the three stages. Companies who produce the finished aluminum should benefit from higher prices, though alumina refineries could be somewhat slower to reap the benefits due to an oversupply of aluminum relative to demand.
  • The US Steel (NYSE:X), Nucor (NYSE:NUE), and General Dynamics (NYSE:GD) steel companies could all benefit from an increase in aluminum prices. Certain companies, such as auto makers, have been replacing steel with aluminum to take advantage of aluminum's lighter weight. Rising aluminum prices can slow this process, helping to curb these companies' migration away from steel.

Aluminum Futures

References

  1. Based on an average passenger car and light truck weight of 4,066 lbs and an average of 300 lbs of aluminum per vehicle.
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