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.
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.
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.
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.
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 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.