How Is Aluminum Traded?

Aluminum is a popular trading option since it is applied in various sectors, such as building, vehicle manufacturing, and delivery, etc. The market of commodities is where buyers and sellers come together to set the market price of the metal.

There are a number of essential aspects that affect the asset cost, and awareness of them is critical to speculate on the metal effectively. Today, we are going to reveal them and explain how to benefit from each. Enjoy reading your guide to trading aluminum!

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Factors That Impact The Product

The sector of commodities is considered to be the most stable. That’s why metals are often referred to as the best investments during periods of inflation and economic crises. That’s why it’s necessary to be aware of:

Electricity Price

The process of alumina mining and smelting it to the end product requires a significant amount of power, and the fees for this power significantly impact the metal’s price.

Countries with low electricity fees, for example, Canada and Iceland, have a significant benefit compared to states with high expensive electricity, such as the United States and Europe. Therefore, changes in the cost of electricity in places where aluminum is produced can affect global price movements.

The Necessity Of Raw Materials

World’s economic conditions can greatly change the demand for any asset, and aluminum is no exception. When economies are on the rise, the metal becomes more demanded, as construction and manufacturing activities expand. On the other hand, during economic downturns, requests for metals may decline.

Other factors that affect aluminum include shifts in consumer preferences, government policies, and technological advancements.

Supply

The supply of the product is affected by the production capacity of aluminum-producing countries, the availability of raw materials, and transportation costs. When supply is high, the asset loses its scarcity and therefore the price tends to decline.

On the contrary, the higher scarcity driven by lower supply boosts the demand for this raw material.

Geopolitical Events

Geopolitical events such as wars, sanctions, and political instability in countries that produce or consume this raw material can influence the value of the metal.

For example, trade sanctions imposed on aluminum-producing countries can disrupt the supply chain and lead to a shortage of aluminum, which can cause prices to rise.

Different Ways To Profit

Investors can take advantage of metal cost fluctuations by trading futures and options, putting funds in ETFs, or purchasing securities of aluminum production companies. Here are some more detail about each way:

Metal Futures

Futures and options are available on several specialized exchanges all over the globe, such as the London Metal Exchange (LME), the New York Mercantile Exchange (NYMEX), and others. These assets allow investors to take a long/short position on the metal, depending on their suggestions regarding the market future.

For instance, if a participant considers that the price of the product will rise soon, they purchase futures, which provides them with the possibility to purchase the product at a predefined cost at a certain time in the future.

Exchange-Traded Funds

Aluminum ETFs provide an excellent opportunity for market participants to gain access to the aluminum market without physically owning the metal.

With ETFs, investors can easily take advantage of the price movements of aluminum without having to worry about the logistics of handling the physical product or investing in complicated futures contracts.

ETFs also provide an additional layer of diversification, as they typically invest in a portfolio of different aluminum-related assets, including mining companies, producers, and aluminum futures contracts. By investing in ETFs, investors can gain exposure to the aluminum market while also managing their risk profile.

Shares Of Production Enterprises

Investing in securities of enterprises that produce aluminum is another way to gain exposure to the commodity market without actually buying raw materials. Corporations that produce the metal are affected by changes in the price of aluminum, and, consequently, their securities follow the same trend.

This means that holding these shares can be an indirect way of taking advantage of aluminum price movements. If you find this way prospectous, you should take into account the securities of such sector leaders as Alcoa (AA), Arconic (ARNC), Century Aluminum (CENX), Rio Tinto (RIO), and others.

Conclusion

Aluminum is a widely traded metal that is used in various industries, including construction, transportation, and packaging. Understanding the reasons that drive the price is critical to trade the metal effectively.

The cost of electricity in aluminum-producing countries, demand for the metal, supply of aluminum, and global events can all drive the meta’s price higher or lower.

Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.