How to Invest in Aluminum
Aluminum is one of the most abundant metals on earth and the third most widespread element after oxygen and silicon. Aluminum is generally prized for its low density and its remarkably ability to withstand corrosion, making it a popular choice for a variety of uses.
Aluminum has had an extremely interesting history over the years as its main uses have changed drastically. At first, despite its abundance, the metal was extremely expensive to harvest as it is never found free in metallic form. Due to this, aluminum was once considered a precious metal and was, at one time, more valuable than gold. However, thanks to several scientific breakthroughs in the late 1800s and early 1900s, scientists figured out how to harvest the metal in a much more efficient way allowing it to become the ubiquitous metal that we see today. Currently, aluminum finds its way into a wide range of uses stretching from foil and cans to cars and aircraft, suggesting that the product has a wide variety of industrial uses.
There are a number of options for those seeking exposure to aluminum. Although physical exposure isn\’t really possible, investors do have the option of buying futures contracts of the metal or buying an ETN that tracks an index of these futures contracts. There are also a number of stocks and even an ETF of companies that provide exposure to the companies that mine or produce the base metal allowing investors to achieve their exposure to aluminum through the equity market.
Ways to Invest in Aluminum
There are 3 ways to invest in Aluminum: ETFs, Futures, and Stocks. Click on the tabs below to learn more about each alternative.
What are Aluminum ETFs?
For investors looking to establish exposure to aluminum, there are exchange-traded products that can minimize the monitoring and rebalance required. One such fund offers exposure to aluminum futures contracts; the iPath Dow-Jones Aluminum ETN (JJA) is linked to an index that consists of aluminum futures. As such, investors should realize that JJA will deliver returns available through a futures-based strategy, which will not necessarily match up with movements in spot prices. It should also be noted that JJA is an ETN, meaning that investors are exposed to the credit risk of the issuing institution.
Investors in international markets may have more options for aluminum exposure through ETPs; ETF Securities offers leveraged and inverse aluminum products in European markets in addition to traditional long exposure funds.
It is also possible to gain exposure to companies engaged in aluminum production through an ETF; the (ALUM) invests in companies that are engaged in the mining and sale of aluminum. While this ETF also will not move in unison with spot prices, it can be a way to gain exposure to the metal while avoiding futures contracts.
What are Aluminum Futures?
Aluminum futures are available for trade on the London Metal Exchange. LME futures contracts are quoted in U.S. dollars and cents per metric ton, with each contract representing 25 tonnes (about 55,000 pounds). Clearable currencies include the U.S. dollar, yen, pound, and euro. Aluminum must be primary aluminium with impurities no greater than in the registered designation P1020A in the North American and International Registration Record entitled “International Designations and Chemical Composition Limits for Unalloyed Aluminum.”
Aluminum futures traded on the COMEX division of the NYMEX, but were delisted in September 2009. Those contracts were delivered in all months of the year.
How to Buy Aluminum Stocks
One option for investors seeking to establish exposure to aluminum involves purchasing stocks of companies that are engaged in the extraction or production of this metal. Because the profitability of these companies is generally tied to the market price of their products, these stocks tend to exhibit a strong positive correlation with movements in spot prices. Investing in stocks may be an attractive options because it avoids the nuances and complexities of futures contracts.
The operations of many metals companies focus on a number of natural resources, which may diminish the exposure directly to aluminum in particular. Nevertheless, there are a number of pure play aluminum companies that focus primarily on this metal:
- Rio Tinto
- Alcoa Inc
- Norsk Hydro
- Alumina Ltd
- Century Aluminum
For a complete list of aluminum companies, see the holdings of the Global X Aluminum ETF.
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