Aluminium

Aluminium is a versatile metal used in various industries, including construction, transportation, packaging, aerospace and electronics. Trading aluminium can be attractive due to its widespread applications and hedging capabilities. This tutorial explains what influences the price of the industrial metal and how to trade aluminium online. Use our list of the best aluminium brokers to start investing:

Aluminium Trading Basics

Aluminium trading involves speculating on the price of the metal online. It is traded on various exchanges, including the London Metal Exchange (LME) and users can trade it through various means, such as investing in stocks in mining companies, ETFs, CFDs, and futures.

The global market is dominated by a few key players, including Rio Tinto (Anglo-Australian), Alcoa (US) and Rusal (Russian).

In terms of consumption, China is the key player, accounting for more than 40% of the global supply. Japan, the EU, and the US are the next largest consumers.

History

Aluminium trading dates back to 1825, when Hans Christian Oersted, a Danish physicist, first discovered the metal.

Aluminium was initially considered a precious metal and was more valuable than gold due to the high cost of its production, which involved a complicated extraction process from bauxite ore.

In the late 19th century, technological advancement made it more affordable to produce the metal. This led to increased demand and, by the early 20th century, aluminium had become widely used.

The creation of the London Metal Exchange (LME) in 1877 was a significant milestone in its history. The LME allowed for speculation via aluminium futures contracts, which enabled producers and consumers to hedge against price fluctuations.

Today, aluminium trading is an important part of the global economy.

Price Chart

Factors Influencing Aluminium Prices

• China: As the world’s largest consumer of the industrial metal, demand in China can have a significant impact on prices. A growing Chinese economy in recent decades has pushed up prices of aluminium, but if prosperity wains then the price of the metal may suffer. China primarily uses aluminium for packaging, transportation and electronics.
• Competing Materials: Aluminium plays a key role in the aerospace and automobile industries. However, competition from carbon fibre, for example, is threatening its role in construction. As lighter composite alternatives become more technologically advanced and lower in price, the value of aluminium may take a hit.
• Production Costs: The cost of producing aluminium influences its price. Movement in the price of electricity and oil, in particular, can have a large impact on the price of the metal. Recycled aluminium will also be affected by the current price of scrap metal.
• Currency Exchange Rates: As aluminium is traded globally, exchange rates between currencies can significantly impact the price of aluminium. Aluminium is quoted in US dollars, so producers bank more dollars when the dollar is weak and vice versa.
• Economic & Political Factors: Economic factors such as GDP, inflation and interest rates can impact the price of the commodity. Political factors such as trade policies and geopolitical tensions can also affect its value. For example, the pandemic led to a global economic slowdown, which decreased demand for aluminium as industries scaled back their production. At the same time, political tensions between the US and China led to tariffs on aluminium imports, which disrupted the global supply chain. As a result, prices fell sharply in the first half of 2020.
• Environmental Regulations: Environmental regulations like carbon taxes and emission standards can ramp up the costs involved in producing and exporting aluminium, subsequently influencing its price on the markets. For example, the European Union’s Emissions Trading System (ETS), a cap-and-trade system that sets a limit on the amount of greenhouse gas emissions that can be emitted by certain industries in the EU, has increased production costs, affecting the global supply chain and influencing market demand for aluminium products.

How To Invest In Aluminium

• Futures Contracts: Aluminium futures allow traders to speculate on the price of the commodity at a future date. These contracts are sold on exchanges such as the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) but can be accessed through some popular online brokers.
• Contracts For Difference (CFDs): These leveraged derivatives allow traders to bet on rising and falling aluminium prices. CFDs are particularly popular with short-term traders and are widely available at UK brokers.
• Mining Companies: Investing in the stocks of mining companies that produce aluminium is another way to gain exposure to the metal. This can be done by buying shares of companies such as Rio Tinto, Alcoa, Rusal, Arconic, and Century Aluminium.
• Exchange-Traded Funds (ETFs): Aluminium ETFs allow investors to trade the metal much like one would a stock. These funds track the performance of the aluminium market alongside other assets and can provide diversification to portfolios. Popular products include the WisdomTree Aluminium ETF.
• Bullion: Aluminium can also be bought in its purest form, i.e the metal itself. It is typically sold in parts, coins and cans. The downside of this approach is transportation and storage costs.

Advantages Of Aluminium Trading

• Diversification: Investing in aluminium provides an opportunity to diversify away from products like stocks and bonds. It can also provide a hedge against inflation and currency risk.
• High Liquidity: The aluminium market is highly liquid, meaning that investors can buy and sell aluminium easily and quickly, often with low transaction costs.
• Potential For Returns: The aluminium market can be volatile, with prices fluctuating based on a range of factors. This can provide potential opportunities to make a yield.
• Growing Demand: Aluminium is widely used in various industries, including construction, aerospace and packaging. As the global economy grows, the demand for aluminium is also likely to increase. In particular, trading aluminium is a way to bet on growing Chinese demand.
• Flexibility: There are several ways to profit from changes in aluminium’s value, including futures, CFDs, ETFs and targeted stock trading.

Disadvantages of Aluminium Trading

• Supply And Demand Imbalance: Recent years have seen an overproduction of commodities in China, including aluminium. This excess supply can negatively hit prices.
• Currency Risk: A rising US dollar is normally bad news for commodity prices, including aluminium. Investors may see their holdings fall if the dollar strengthens.
• Market Volatility: As with many commodities, the aluminium market can be highly volatile, resulting in substantial losses for those that do not manage risk effectively.
• Geopolitical Risks: Political instability, trade policies and other geopolitical factors can impact the value of aluminium products, leading to possible losses.

Comparing Aluminium Brokers

Access To Aluminium Markets

Check whether the broker offers access to aluminium markets, whether that be futures from the London Metal Exchange (LME) or the Shanghai Futures Exchange (SHFE). Some aluminium brokers may also offer access to regional metal markets, such as the Dubai Mercantile Exchange (DME) or the Multi Commodity Exchange (MCX) in India.

Also check for the trading products offered, from direct share dealing to ETFs, CFDs, futures and options.

Spreads & Fees

The best aluminium brokers offer low and transparent trading fees. Skilling, for instance, has a minimum spread of 13 on aluminium while the average spread is 15. The minimum contract size is 0.1.

Regulation

Investing through brokers that are regulated by the Financial Conduct Authority (FCA) will provide the best protection against scams, fraud or malpractice.

For example, eToro is a popular broker that offers aluminium trading to UK traders and is regulated by the FCA.

Trading Platforms

Consider the trading platforms offered by aluminium brokers as these will be used for any technical analysis and position management. Look for real-time market data, built-in automation sections, one-click trading and interface customisation.

For example, Fusion markets, offers popular third-party platforms like MetaTrader 4 and MetaTrader 5.

Risk Management Tools

Check whether the company offers risk management tools like stop-loss orders and take-profit orders. These can help manage risk exposure and minimise potential losses from significant aluminium market events.

For example, you can set a stop-loss at a certain price level to automatically close your position if the market moves against you.

Educational Resources

Consider the educational resources offered by the broker, such as aluminium market analysis, news updates, and educational webinars. These resources can help traders stay informed about the market and make informed trading decisions. Some brokers offer daily market analysis reports, strategy tips, and webinars hosted by industry experts.

Aluminium Trading Hours

The opening hours for aluminium depend on the market on which the products in question are traded. The two major markets for aluminium trading are the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE).

The LME is the world’s largest metal exchange and offers investing via aluminium futures and options contracts. The LME aluminium opening hours are Monday to Friday, 01:00 to 19:00 GMT with a lunch break between 12:30 and 13:25 GMT. The LME also offers pre-market and post-market (extended hours) trading sessions for aluminium futures contracts, which run from 20:00 to 01:00 GMT and from 19:00 to 20:00 GMT, respectively.

The SHFE is the largest futures exchange in China and offers investing in aluminium futures contracts. The SHFE trading hours for aluminium are Monday to Friday, from 09:00 to 15:00 CST, with a break from 11:30 to 13:30 CST.

Bottom Line On Aluminium Trading

As one of the most widely used metals, aluminium has a strong demand from various industries, making it a popular commodity for financial speculation. However, this does come with its own set of risks, including market volatility, currency risk and threats from alternative materials.

Our list of top aluminium brokers can help prospective speculators get started.

FAQ

Article Sources

Aluminium futures and options – CME Group

Largest aluminium producing companies – Statista

Aluminium trading conditions – Skilling