If you are interested in mining investments, consider the most abundant mineral in the world: aluminum. Once considered the most precious metal more valuable than gold, aluminum is starting to shine once again.
Aluminum occupies 8% of the earth’s surface, is the third most abundant element (after oxygen and silicon) and is the second most used metal in the world (after iron).
The problem is that it cannot be mined in nature as a free metal, so its main source of minerals is bauxite ore.
uses of aluminum
You know all about aluminum cans (and the fact that aluminum is 100% recyclable), but construction and transportation are its main uses; in fact, one in five tons of aluminum is used for construction.
Then there is car production. According to the Aluminum Transportation Group, on average, 8.6% of the weight of a North American car is made up of aluminum. This reduces the overall weight of a car compared to using steel, making cars more energy efficient.
China has now overtaken the US as the largest car market. While the US auto industry has been slow, Asia has picked up speed with Japan and Korea having large auto industries. Carlos Ghosn, chief executive officer and president of Renault France and Nissan Japan, forecasts record global car production.
Japan’s shipments of rolled aluminum products in August increased for the ninth consecutive month with a 13% increase. Automakers in Japan will likely cut demand due to a government subsidy that expires in September, but demand is likely to pick up in the first quarter of 2011.
Production
The main mining areas are Russia, Indonesia, Ghana and Jamaica.
Most of the smelting occurs in Australia, Canada and Brazil. The extraction of aluminum through smelting is an energy-intensive process. In fact, up to 40% of the cost of aluminum production is electricity costs.
Is the chemistry correct?
China is the largest supplier and consumer of aluminum. In 2010, China was a net exporter of aluminum and is already responsible for consuming a quarter of the aluminum produced in the world. This is expected to continue in 2011. This high demand points to signs that China could become a net importer of aluminum in 2012.
However, a key risk to the aluminum market is the curb on real estate developments that the Chinese government is trying to impose. So stay tuned for progress on that proposal.
Investment Outlook
Aluminum prices have been rallying but are still well below the highs reached in 2008. The market is showing signs of recovery and 2011/12 is expected to be bullish on price terms.
Technically, aluminum is currently in an uptrend. Harboraluminum (global aluminum consultants) suggests that aluminum prices may continue this upward trend with a year-end target of $2,400 per metric ton with prices reaching $2,700 sometime in 2011. (Harboraluminum.com)
Recently, the Japanese company Sumitomo announced that it would buy a 20% stake in a Malaysian aluminum smelter. The company is already involved in aluminum smelting in Australia and Brazil and sees growing demand for aluminum in Asia.
The chart below shows aluminum prices on the London Metal Exchange for the past two years.
How to can some aluminum
The main difference between our two largest miners is that RIO has a large exposure to aluminum, while BHP has a large exposure to oil. In a sense, RIO is a way of interpreting the history of aluminum.
For a pure aluminum kit, Alumina (AWC) is an option. It is involved in a joint venture with Alcoa.
So don’t be fooled by aluminum. Keep these elements in mind and you will soon have a long-term investment strategy.
Happy trading!
