Aluminium Trading Guide: Options Explained for Novice Traders


Learn How to Start Trading Aluminum Today
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Aluminum can be traded in a variety of ways. In this guide, we’ll explain how to trade this resource and where you can find regulated, reputable brokers in .

In a hurry? If you want to get started trading aluminum, here are brokers available in to consider:

Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.

Read on to find out why people may trade aluminum.

Why Do People Trade Aluminum?

Manufacturing represents an important part of national GDP figures, particularly in the fast-growing emerging economies. Hence, trading aluminum is a way to bet on global GDP growth.

Some of the commonly cited reasons for trading aluminum include:

  1. Bet on Chinese Demand
  2. Bet on Transportation Demand
  3. Portfolio Diversification

Learn more about why people trade aluminum or jump ahead to learn about ways to trade aluminum.

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.

Betting on Chinese Demand For Aluminum

China produces and consumes a large percentage of the global aluminum supply.

The fast-growing Chinese economy saw aluminum demand spikes in recent years, due to construction, transportation, and electronics.

However, as Chinese GDP slowed, internal demand could not absorb the large supply, and Chinese producers increased exports of aluminum to the United States and other countries.

If Chinese economic growth picks up even further, then the country’s demand for aluminum is likely to grow. This could create a supply shortage and higher prices.

Speculating on Transportation Demand

The global economy depends on transportation to support growth.

The aluminum market in aerospace equipment and automobiles could grow as the global economy expands. Individuals need cars and trucks to travel to work.

Pro-growth policies in industrial and emerging economies should boost demand for aluminum in transportation products.

Aluminum For Portfolio Diversification

Including aluminum in a trading portfolio along with other metals and other commodities is a way to achieve asset diversification.

Baskets of commodities, including aluminum, can act as insurance for traders from declines in other commodities in the same grouping.

Ways to Trade Aluminum

Aluminum traders have several ways to trade the commodity:

Method of InvestingStorage Costs?Security Costs?Expiration Dates?Management Costs?Leverage?Regulated Exchange?
Aluminum FuturesNNYNYY
Aluminum ETFsNNNYNY
Aluminum SharesNNNNYY
Aluminum CFDsNNNNYY
Aluminum OptionsNNYNYY
Aluminum BullionYNNYNY

How Do Aluminum Futures Work?

Futures are derivative instruments through which traders make leveraged bets on commodity prices.

The COMEX, which is part of the New York Mercantile Exchange (NYMEX) and Chicago Mercantile Exchange (CME), offers a contract on Aluminum MW US Transaction Premium Platts that settles as 25 metric tons of the metal.

The contract trades globally on the CME Globex, an electronic trading platform.

Losses, Expiration Date, and Futures Difficulty

If prices decline, traders must deposit additional margin in order to maintain their positions.

Aluminum futures contracts expire on the last business day of the contract month and are financially settled.

Trading futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

How To Trade Aluminum ETFs

Exchange-traded funds (ETFs) trade on exchanges like stocks. There are currently two ETFs that trade in aluminum futures:

  • iPath Dow Jones-UBS Aluminum ETN (NYSEARCA: JJU)
  • iPath Pure Beta Aluminum ETN (NYSEARCA: FOIL)

There are several other ETFs that trade in industrial metals, including the following:

  • UBS E TRACS CMCI Industrial Metals Total Return ETN (NYSEARCA: UBM)
  • SPDR S&P Metals & Mining ETF (NYSEARCA: XME)

Can I Buy Aluminum Company Shares?

There are many companies engaged in mining and processing bauxite and other ores.

While these companies don’t provide exposure to exclusive aluminum trades, the performance of their shares correlates with aluminum and other industrial metal prices.

Popular mining stocks include:

CompanyCurrent PriceOverviewListings
Rio Tinto
Developed some of the world’s largest and best quality mines and operations.New York (NYSE)
London (LSE)
Sydney (ASX)
Alcoa
Invented the aluminum industry in 1888 and continue to innovate with new technologies and processes.New York (NYSE)
Hydro
A global, integrated aluminum company.Oslo (OSE)
OTCQX International
Alumina Ltd
Invest in bauxite mining and alumina refining through Alcoa World Alumina & Chemicals (AWAC)Sydney (ASX)
New York (OTCQB)
Century Aluminum
Global producer of primary aluminum. Operates aluminum reduction facilities in the US and Iceland.NASDAQ (New York)

How To Trade Aluminum CFDs

Traders can speculate on aluminum prices without actually owning physical aluminum, mining shares, or financial instruments such as ETFs, futures, or options.

A CFD is a derivative instrument known as a contract-for-difference (CFD) To learn more about how CFDs work, see this CFD Trading Guide.

IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.

Where Can You Trade Aluminum?

If you are looking to get started trading aluminum and other commodities, here’s a list of regulated brokers available in to consider.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 74%-89% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you can afford to take the high risk of losing your money.

Risks Of Trading Aluminum

  1. Overproduction glut
  2. Advances in composite materials
  3. Strengthening US Dollar

Trading aluminum, however, has its risks. There are three reasons why aluminum prices might decline in value:

Aluminum Overproduction

China has a recent history of overproducing commodities and dumping them on global markets.

If internal demand for commodities does not pick up in China, markets might suffer from an excess of aluminum, resulting in lower prices.

Competition From Alternative Metals

Aluminum faces serious competition from composite materials and alternative metals.

Technological innovations have created products that are lightweight and priced competitively. If these advances continue, then aluminum prices could suffer.

What If The US Dollar Rallies?

A strong US currency is usually the enemy of commodity prices.

If the US Federal Reserve turns hawkish and raises rates aggressively, the dollar may rally and commodity prices including aluminum may suffer.

Expert Opinions On Aluminum

Experts are ambivalent about the prospects for aluminum prices over the coming years. Some analysts are optimistic on the commodity point to the correction of global supply/demand imbalances.

JPMorgan, for instance, notes that supply reform should lift markets in the future.

It points to the closing of smelters in China as a positive catalyst, although it also notes that these smelters will likely reopen as the price of aluminum rises.

What Does Andrew Estel Think Of Aluminum?

Andrew Estel, Vice President of Strategic Planning and Analysis at Alcoa, reckons that Chinese demand for aluminum is expected to increase by 7 percent this year, ahead of the global rate of 5 percent.

Estel estimates that China represents over 50% of the world’s demand for primary aluminum.

He notes that growth in Chinese demand should exceed the rest of the world, but that Chinese surplus production remains an overhang on prices.

Further Reading

To learn more about aluminum production and the main uses of the metal in industry, see our Guide To Aluminum As A Commodity.

Also see our guides on bullion, stock, CFDs, options, and commodity brokers to find out which online trading brokerages are available in .

If aluminum isn’t a metal for you to trade, see our trading guides on other metals like gold, silver, copper, iron ore, tin, and steel.

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