Aluminium is available in a number of different deliverable grades depending on the task for which it is required. Aluminium that is traded as a commodity generally must meet certain criteria, namely that it is of at least 99.7% purity, and that it has within its make-up no more than 0.2% iron and no more than 0.1% silicon. It is traded in commodity exchanges under the commodity code of AL.
Aluminium has several attractive qualities as a commodity. Lighter than steel at only one third of the weight, it still retains enough core strength to be of use in a number of applications. Its position in industry is secured by its ability to conduct heat and electricity as well as copper, its resistance to corrosion (making it suitable for outside use), and its non-toxic make-up. It is also non-magnetic, which can be useful in the industrial sector. Another special feature of aluminium is that it is recyclable, endowing it with significant green credentials.
Since aluminium is one of the world’s most important metal commodities, aluminium trading is widespread. Aluminium is traded on several commodity exchanges: the Commodity Exchange (also known as COMEX, it is a division of the New York Mercantile Exchange, or NYMEX), the London Metal Exchange (LME) and theTokyo Commodity Exchange (TOCOM).
Among one of the largest business markets for aluminium is the transportation market, as aluminium is used in the construction of planes, cars, trucks and bikes. The aluminium market also encompasses the construction industry, as this important metal is frequently employed in the structural framing for buildings. The canned drinks market is a further market for aluminium, as it is the material of choice of recyclable drinks cans due to its light and reusable nature.
Aluminium is produced by extracting it from aluminium ore, so aluminium production is highest in the regions that have a high natural supply of ore. China, the United States of America and Russia all possess large deposits of bauxite, from which aluminium is refined. This in turn makes them the countries that produce the most aluminium. America is considered to be the largest consumer of aluminium also, along with Japan and China.
The factors that influence the aluminium spot price and the price of aluminium futures are largely tied in to the industries with which they are associated. Swells and dips in the housing market can have an effect on the aluminium spot price, as a rise in demand for new buildings will also result in a rise in demand for aluminium. Obviously the opposite is also true. Furthermore, some car manufacturers are still using steel, which is cheaper but less practical, in the construction of their vehicles, but as they gradually switch over to using aluminium the demand will increase along with the price. Conversely, in the aerospace industry, companies are moving away from the use of aluminium as the primary construction material, instead relying on carbon composites. This will therefore mean that the demand for aluminium from this industry will decrease, and so will the aluminium price. Affecting the price of aluminium futures may be the fact that rising electricity costs will cause production costs to rise proportionally. This could mean refineries lose more money with regard to futures contracts sold as the initial selling price did not account for the hike in the cost of production.