Don't Be Foiled By Aluminium  

If you're interested in mining investments, consider the world's most abundant mineral - aluminium. Once considered the most precious metal more valuable than gold, aluminium is once again starting to shine. Aluminium takes up 8% of the Earth's surface, it's the third most abundant element (after oxygen and silicon), and it's the second most used metal in the world (behind iron).

The problem is that it cannot be extracted in nature as a free metal, so its chief mineral source is bauxite ore.

Uses of aluminium

You know all about aluminium cans (and the fact that aluminium is 100% recyclable), but building and transportation are its main uses - in fact one in five tons of aluminium is used for building.

Then there's car production. According to the Aluminium Transportation Group, on average 8.6% of a North American's car weight is made up of aluminium. This reduces a car's overall weight compared with the use of steel, making cars more energy-efficient.

China has now overtaken the US as the largest automobile market. While the US automobile industry has been sluggish, Asia has been revving up with Japan and Korea having large automobile industries. Carlos Ghosn, CEO and President of Renault France and Nissan Japan is predicting record global car output.

Japan's shipments of rolled aluminium products in August rose for the 9th consecutive month with an increase of 13%. Car makers in Japan will probably cut back on demand due to a government subsidy expiring in September, but we're likely to see demand recover in the 1st quarter of 2011.

Production

The main mining areas are Russia, Indonesia, Ghana and Jamaica.

Most smelting happens in Australia, Canada and Brazil. Extracting aluminium through smelting is an energy-intensive process. In fact up to 40% of the cost of producing aluminium is electricity costs.

Is the chemistry right?

China is the biggest supplier and consumer of aluminium. In 2010, China was a net exporter of aluminium and is already responsible for consuming a quarter of the world's produced aluminium. This is expected to continue into 2011. This high demand points to signs that China could turn into a net importer of aluminium in 2012.

However, a key risk for the aluminium market is the curb on property developments that the Chinese government is seeking to impose. So keep watch on the progress of that proposal.

Investment outlook

Aluminium prices have been picking up but are still significantly off the highs reached in 2008. The market is showing signs of picking up, with 2011/12 expected to be bullish in terms of prices.

Technically aluminium is currently in an uptrend. Harboraluminum (global aluminium consultants) suggest that aluminium prices may continue this trend up with a year end target of $2,400 per metric ton with prices hitting $2,700 at some point in 2011. (Harboraluminum.com)

Recently Japanese company Sumitomo announced it would buy a 20% stake in a Malaysian aluminium smelter. The company is already involved in aluminium smelting in Australia and Brazil and sees increasing aluminium demand from Asia. The below graph shows aluminium prices on the London Metals Exchange over the last two years.

How to can some aluminium

The main difference between our two biggest miners is that RIO has a large exposure to aluminium while BHP has a big exposure to oil. In a sense, RIO is one way to play the aluminium story.

For a pure aluminium play, Alumina (AWC) is an option. It's involved in a joint venture with Alcoa. So don't be foiled by aluminium. Keep in mind these elements and soon you might can a long-term investment strategy. Happy trading!

 

 

 

About the Author:

Julia Lee is an Equities Analyst for online share trading platform Bell Direct. Julia provides information on share trading and online trading for frequent traders and investors.