Investing in Aluminum through Futures and Manufacturing Operations

You can invest in aluminum in two ways: either through trading in the futures markets or through investments in companies that produce and manufacture aluminum products.

Investing in aluminum futures

Currently, two major contracts for aluminum are available. The first one is through the London Metal Exchange (LME), while the second one is traded in the COMEX division of the New York Mercantile Exchange (NYMEX).

  • LME Aluminum: The London Metal Exchange’s (LME) aluminum contract is the most liquid in the world. The LME aluminum contract represents a size of 25,000 tons and its price is quoted in US Dollars.

  • COMEX Aluminum: The aluminum contract traded on the COMEX division of the NYMEX trades in units of 44,000 pounds, with a 99.7 percent purity. The contract is tradable during the current calendar month as well as for the next 25 consecutive months. It trades under the symbol AL and is also available for trade electronically.

Because the NYMEX is located in the United States, it is regulated by the Commodity Futures Trading Commission (CFTC). However, because the LME is located in the United Kingdom, it falls under the jurisdiction of the Financial Services Authority (FSA), the British regulator. This information is crucial because if you start investing in futures, and something goes wrong, you need to know who to turn to. These regulatory bodies are well equipped to handle customer complaints and questions.

To give you an idea of the performance of aluminum within a span of years, the following figure shows you the chart of COMEX aluminum. As you can see, the underlying demand from rapidly industrializing nations such as China and India has resulted in upward price pressures on the metal. Of course, global economic downturns affect commodities across the board.

Historical price levels of aluminum on the COMEX from 2002 to 2006 (Dollars per Pound).
Historical price levels of aluminum on the COMEX from 2002 to 2006 (Dollars per Pound).

Investing in aluminum companies

Another way to invest in aluminum is by investing in companies that produce and manufacture aluminum products. Here are a few companies that make the cut:

  • Alcoa (NYSE: AA): Alcoa is the world leader in aluminum production. It is involved in all aspects of the aluminum industry and produces primary aluminum, fabricated aluminum, as well as alumina. The company has operations in over 40 countries and services a large number of industries, from aerospace to construction.

  • Alcan (NYSE: AL): Alcan, which is headquartered in Canada, is a leading global manufacturer of aluminum products. It has operations that cover the spectrum of aluminum processing, from mining and refining to smelting and recycling.

  • Aluminum Corporation of China (NYSE: ACH): Like its name implies, ACH is primarily engaged in the production of aluminum in the Chinese market. This company, which trades on the New York Stock Exchange (NYSE), is a good choice because it provides you with a foothold in the aluminum Chinese market, which has the potential to be the biggest such market in the future.