Aluminum, one of the most popular commodities for its wide range of industrial uses, is under a significant amount of pressure as of late. The metal has endured its biggest drop since the global recession, and prices have slumped so low that it may make 25% of the world’s aluminum smelters unprofitable. Since May 1, the metal has fallen by nearly 23% and has investors chomping at the bit to make a potentially profitable trade in this beaten-down commodity [see also 25 Ways To Invest In Silver].
Aluminum is currently sitting around $0.96 per pound and is likely facing pressure due to worries over the global economy. As a major industrial metal, aluminum’s price vastly depends on strong economies and construction figures, so with an uncertain future, it is no surprise to see this metal facing tough times. With a weakened demand outlook, some investors may be fearful that the bottom may still be a ways away. “When demand and prices weakened in 2009, smelters curbed supply by about 5 percent in the first half of the year, according to the International Aluminium Institute. Futures rallied 37 percent in the following six months” write Maria Kolesnikova, Sungwoo Park and Jesse Riseborough. With a great opportunity for aluminum to swing in either direction, now may be the perfect time to establish a position in the popular metal [see also 25 Ways To Invest In Alternative Energy].
Ways To Play
When it comes to futures, investors will find aluminum contracts on the London Metal Exchange. The contracts are quoted in dollars per ton and the futures feature contango that persists through 2014. From an equity standpoint there are a wealth of options for aluminum. Perhaps the most popular comes from Alcoa (AA) which is stationed in Pittsburgh and operates in over 30 countries worldwide. Investors can also take a less direct approach with the general metals miner Rio Tinto (RIO). There are also two ETFs that offer exposure, the Dow Jones-UBS Aluminum Total Return Sub-Index ETN (JJU) and the relatively young Pure Beta Aluminum ETN (FOIL) [see also Three Things Wall Street Journal Didn’t Tell You About Commodities].
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Disclosure: No positions at time of writing.
