The Aluminum Bull Market: Why You Should Buy Now
MetalMiner | Nov 22, 2016 05:00AM ET
Just a few days after hitting a 15-month high, the aluminum rally cooled down as prices inched lower over the past few days.
So, where are aluminum prices heading? Is it now a good time to hedge/buy forward? The short answers are: up and yes. But let’s explains this view a bit further.
h2 A Bull Case/h23-Month LME aluminum prices trending higher this year. Source: MetalMiner analysis of Fastmarkets.com data.
Concerns about rising supply in China kept a lid on prices for most of this year. However, market dynamics have changed somewhat over the last few months. China’s aluminum supply has been in check, with data showing a slight decline in the country’s aluminum exports this year.
h2 What’s Coal Got to Do With it?/h2Helping keep supply in check is the recent spike in coal prices as coal is used in alumina refining. Thermal coal prices in China have more than doubled this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to keep up with production. In addition, alumina, which is then processed to produce raw aluminum, has risen steeply in price over the last couple of months.
Meanwhile, even the most pessimistic estimates put the annual demand growth rate at about 4%. Not only that, but Chinese aluminum demand has been better than expected. Chinese demand from infrastructure and construction has been robust this year. The automotive sector, another big industry for aluminum demand, continues to look strong.
Adding to the bull case for demand growth in China is the expected boost in U.S. infrastructure spending following republican nominee Donald Trump’s election victory. Trump originally said he intends to spend more than $500 billion on the infrastructure sector, twice the amount that Hillary Clinton was looking to allocate.
That amount doubled to $1 trillion during the last weeks of the campaign. Demand for industrial commodities such as aluminum will benefit from that and given the already investor’s bullish sentiment on the whole “unexpected” upside moves like the one we recently saw in copper.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.