What Market Fundamentals Can
Affect The Aluminum Futures?
In free market economies, supply and demand is the primary enabler for
price movement. Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade
in the aluminum market some of the basic fundamentals that you should consider are:
1. Mine Production Aluminum ore, most commonly bauxite, is plentiful and occurs mainly in tropical and sub-tropical areas.
The leading producing countries include the United States, Russia, Canada, the European Union, China, Australia, Brazil, Norway,
South Africa, Venezuela, the Gulf States (Bahrain and United Arab Emirates), India and New Zealand. Together theses countries
represent more than 90 percent of the world primary aluminum production. Global production of aluminum is approximately 30
million tons. World aluminum mine production through exploration of new mines and expansion of existing mine is a major factor
that affects aluminum supply and price.
2. Demand The largest aluminum markets are North America, Europe and East Asia. Economic growth in these areas is key for aluminum
demand. Aluminum demand is dependant on the strength of the building, construction, packaging and transportation industry.
Aluminum prices have recently dropped considerably due to the global economic downturn. Traders are worried about how the
future of the U.S. automakers may affect demand. Aluminum prices are currently below the marginal production costs of some
mines.
3. New Laws New fuel efficiency requirements have renewed
the auto industry's interest in lightweight materials. Aluminum could reduce the weight of cars dramatically because it weighs
roughly half as much as steel. Aluminum is compatible with current large-volume manufacturing facilities and body shops that
would be expensive to overhaul.
The U.S. Environmental Protection Agency (EPA) has recently amended an
obscure clean water regulation that restricted use of aluminum in automobiles because of a potentially harmful byproduct created
in the manufacturing process. This will substantially reduce the cost of aluminum-based car components, which will likely
accelerate the industry's plans to replace vast amounts of steel currently used in cars with aluminum.
4. Inventory Stocks LME, TOCOM, SHFE and NYMEX are the major international exchanges where aluminum trades. Changes
in the inventory stocks in LME, SHFE and TOCOM warehouses provide price direction for the aluminum market.
These are just some
of the basic fundamentals to keep in mind when you are considering a trade in the aluminum market. Therefore, before opening
up a commodity account to trade aluminum you should consult with a licensed commodity broker that follows the aluminum market to discuss investment
strategies.
