Where to invest as aluminium plays catch-up

published 19 July 2007

Over the past five years, the price of aluminium, which is used in a range of items from beverage cans to aircraft fuselages, has risen by about 14% a year compared with 26% for tin and 42% for lead. But the outlook for the metals laggard is improving, says Brett Foley on Bloomberg.

Accelerating industrial production growth in China points to unexpectedly strong demand, says Deutsche Bank, which expects Chinese demand to grow by 20% this year. And there is plenty of scope for higher demand in the years ahead. A country's aluminium consumption is closely linked to its wealth. China and India's output per capita is still less than a sixth that of developed countries; China currently consumes ten kilograms of aluminium per head compared with over 40 in the US and Japan, as Lex points out in the FT. Meanwhile, China is reining in local aluminium production, having recently removed tax rebates on exports of most aluminium products. By 2009, China may be a net aluminium importer, according to Michael Widmer of investment bank Calyon.

Rising energy costs also indicate higher prices: the aluminium production process is more energy-intensive than for other base metals, and production costs have jumped by 30% over the past year. Plants are likely to be taken off stream due to rising costs, thus tightening supply, says commodities guru Jim Rogers. Aluminium should rise above $3,000 a tonne and looks set to outperform other metals next year, Dan Brebner of UBS told Bloomberg. An LSE-listed ETF tracks aluminium (ALUM).