Don’t overlook aluminium

By Harry Stourton Jan 20, 2006

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When it comes to metals, investors are guilty of favouritism. They love to talk about gold, silver, platinum, copper and steel, but aluminium hardly gets a look in.

This is a mistake. What it lacks in glamour, this metal makes up for in utility: it is a crucial component of everything from metal door frames and aeroplane wings to power lines, and that means that any big construction or modernisation projects need lots of it. No wonder then that the metal’s price has risen by 35% in the last two years and hit a ten-year high of more than $2,000 per tonne this week.

Long term, aluminium is not in short supply – the International Aluminium Institute believes there are hundreds of years worth of the metal yet to be mined.

But in the short term, bumping up production isn’t that easy: five tonnes of bauxite have to be extracted for every tonne of aluminium retrieved.

The result is that demand is growing faster than production, which is a problem, given that, according to BHP Billiton, China’s demand is forecast to more than double in the next ten years, to hit 20 million tonnes by 2015 (right now, total world consumption is only 42 million tonnes).

And demand will not peak until 2022-28, says Pan Jiazhu, the vice-chairman of China Nonferrous Metals Industry Association. Right now, China is a net exporter of aluminium, accounting for a little under a third of world production of aluminium, but it’s aluminium exports “are slowing and it may become a net importer”, says Rod Kinkead-Weekes, vice-president of strategy at BHP’s aluminium unit, which should keep the price rising.

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Published in Commodities | More articles by Harry Stourton

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