The fundamentals of the aluminum industry are the best they've ever been, and aluminum stocks have surged over the last year. Although part of the strength is due to supply restrictions in China, the transition to electric vehicles will enhance demand for this lightweight metal in the long run. Low-carbon aluminum is another option. Let's find out how to invest.
The move to electric cars, which currently account for over 20% of new car sales in China, increases aluminum demand. Aluminum companies such as Alcoa and Norsk Hydro and component manufacturers such as Constellium stand to gain from the rising popularity of electric vehicles.
Aluminum is a lightweight metal that makes electric automobiles light, allowing the battery to last longer. Despite its higher cost than steel, aluminum is becoming the preferred material for E.V. components such as battery housing. According to one estimate, an electric vehicle requires 30% more aluminum than a fuel one.
Lighter automobiles may use smaller batteries and go farther on a single charge. Aluminum is an excellent thermal conductor and may be used in electric vehicle chargers. It even accounts for 8% of the weight of solar panels, and it's also recyclable.
Although aluminum is an abundant element, it takes many stages to convert it into a useable metal. First, a raw ingredient, bauxite, is processed into alumina, an aluminum-oxygen combination. Second, an intermediate product called alumina is heated into aluminum. After that, aluminum may be rolled into a variety of forms. The London Metals Exchange also lists it as a commodity.
However, operating aluminum smelters consumes a lot of energy. Smelting is still fueled by coal in China, which produces more than half of the world's aluminum. The environmental advantage of switching to EVs is more significant if low-carbon or recycled aluminum is utilized. Companies like Alcoa and Norsk Hydro sell low-carbon aluminum, and it is smelted using renewable energy. Recycling aluminum also helps to reduce the metal's carbon impact.
Aluminum Corporation of China (Chalco) (ACH)
$15.3 billion in market capitalization
70 percent performance in one year
Chalco, the world's biggest aluminum manufacturer, is a state-owned Chinese corporation based in Beijing. This vertically integrated aluminum provider owns and operates aluminum mines, refineries, and trading companies. It holds and runs 14 bauxite mines in China and mines in Guinea and Indonesia. (Alumina is manufactured using bauxite as a raw ingredient.) Chalco mined more than 20 million tons of bauxite and produced more than 21 million tons of alumina and aluminum products in 2020. (Alumina is used to make aluminum.) Chalco made almost $29 billion in sales in 2020 and is profitable.
We should mention that Chalco has a modest coal operation, which may dissuade ESG investors. The corporation trades under the ticker ACH on the New York Stock Exchange.
Alcoa Corp (AA)
$13.8 billion in market capitalization
One year results: 227 percent
In Pittsburgh, Pennsylvania, Alcoa is significant alumina, aluminum, and bauxite producer. The firm exported 16.9 million tons of alumina and aluminum products and 48 million tons of bauxite in 2021. Alcoa has 100 percent ownership of bauxite mines in Australia and Brazil and equity investments in operations in Guinea, Brazil, and Saudi Arabia. Alcoa owns and operates refineries and smelters in Australia, Brazil, Canada, and other nations.
Alcoa is the most environmentally conscious of the leading aluminum manufacturers, and the firm aims to become the lowest carbon emitter among all worldwide aluminum producers. It has created ELYSIA, the world's first carbon-free smelting technology, and expects to power 85 percent of its smelting activities with renewables.
Alcoa predicts that ELYSIS may eliminate 6.5 million tons of carbon emissions if completely implemented throughout Canada's aluminum smelters, and that's the equivalent of taking 1.8 million automobiles off the road.
Alcoa reported $12.1 billion in sales and $2.8 billion in EBITDA for 2021. Even a small dividend is paid.
Norsk Hydro (NHYDY)
Norsk Hydro (NHYDY) has a market valuation of $18 billion.
74 percent one-year performance
Oslo, Norway's capital Norsk Hydro is a global leader in the aluminum and renewable energy industries. Hydro REDUXA is a low-carbon aluminum product, while Hydro CIRCAL is a recycled aluminum product. Hydro REDUXA reduces aluminum's carbon footprint to less than 25% of the world average. Hydro also manufactures aluminum battery packs, enclosure frames, structural body components, and other products.
Norsk Hydro promotes the use of renewables in the production of low-carbon aluminum. Hydroelectric, wind, solar, and hydrogen are all part of their renewable energy portfolio. They also have joint ventures and collaborations in the battery and recycling industries. Hydro will earn nearly $15 billion in income by 2020. It even pays a dividend, with a current yield of moreover 3%.
Century Aluminum Company (CENX)
Performance in the first year: 39%
The company's headquarters are in Chicago, Illinois. Century Aluminum is the most significant primary aluminum manufacturer in the United States. In Kentucky, South Carolina, and Iceland, the corporation runs three aluminum smelters. In addition, CENX operates a carbon anode manufacturing plant in the Netherlands. (To create aluminum, carbon anodes are required.) CENX can manufacture over 1 million tons of aluminum per year; in 2020, they will produce over 800,000 tons.
The business is also developing Natur-Al aluminum, which is created entirely of renewable resources in Iceland. Most of CENX's aluminum is sold to two companies: mining giant Glencore and Southwire Company, and Glencore is another significant stakeholder. CENX has a market price of about $1.7 billion and revenues of over $1.6 billion in 2020.
Constellium SE (CSTM)
$2.6 billion in market capitalization
Performance in the first year: 28%
Constellium is a French manufacturer of high-value-added aluminum products for the aerospace, automotive, and packaging industries. Automobiles, aircraft, and even beverage cans contain their aluminum, and the automotive sector assists automakers in developing lighter, longer-range electric vehicles. Constellium is also the world's leading manufacturer of aerospace plates and fuselage sheets.
Although Constellium does not profit from short-term rises in aluminum prices like the aluminum miners, it benefits from expanding electric mobility in the long run. In 2020, the corporation will transport 1.4 million tons of aluminum from 28 production facilities. They also announced revenues of €4.9 billion and EBITDA of €465 million.
Kaiser Aluminum Corporation (KALU)
11 percent during the first year
California-based Kaiser Aluminum manufactures aluminum products for aerospace, packaging, automotive, and industrial applications. They have 14 factories in North America and specialize in more difficult-to-make aluminum goods. Kaiser aims to be price-neutral regarding aluminum, passing on metal costs to customers.
They can also create additional aluminum goods for E.V.s as the sector expands, even if they don't profit from price increases in aluminum. Kaiser, for example, manufactures aluminum structural components and automotive crash management systems. Kaiser reported $1.2 billion in revenue for 2020 and $153 million in EBITDA, with over 500 million pounds of aluminum goods shipped.
Arconic Corp (PITTSBURGH)
Arconic, established in Pittsburgh, manufactures aluminum sheets and plates for automobiles, aircraft, and industrial purposes. The corporation has 22 production facilities across the world.
The transportation business accounts for around one-third of sales, and Arconic feels it is at the "forefront of the automotive market's historic change to aluminum-intensive cars." Arconic aluminum sheets aid in the production of lighter, more fuel-efficient automobiles.
Arconic forecasted $5.7 billion in revenue and $619 million in EBITDA for 2020.
Rusal (RUAL)
One year results: 122 percent
Russia's Rusal, the world's third-biggest aluminum producer (and the most significant outside of China), produces roughly 3.8 million tons of aluminum each year. According to the corporation, they are responsible for 5.9% of global aluminum production. Because they depend on hydroelectric power near their manufacturing plants, Rusal's carbon emissions per ton of aluminum are likewise below average. The corporation owns massive dams on rivers in Siberia near Lake Baikal. In 2020, Rusal produced $8.5 billion in revenue and $871 million in EBITDA.
However, given the geopolitical tensions between Russia and Ukraine, which might result in limits on Russian exports such as aluminum, the Moscow and Hong Kong-listed stock seems dangerous.
Aluminum Stocks to Buy: Vedanta (VEDL)
Vedanta is an Indian commodities firm that operates in a variety of sectors. The firm, for example, works in the mining, oil, and gas industries, as well as processing copper and iron ore in addition to aluminum.
The reason to evaluate this selection of aluminum stocks today is the sky-high aluminum prices. In its most recent financial report on July 26, the firm reported its highest-ever quarterly aluminum output.
Year-over-year (YOY) sales climbed by 79 percent over time. Meanwhile, EBITDA growth surpassed revenue growth, hitting 150 percent during the same period.
I see a few reasons to be optimistic about VEDL stock in the future.
For starters, it has been shown that China will likely be a net importer of aluminum in the foreseeable future – and perhaps longer. Given India's closeness to China, higher revenues are possible. (Yes, I am aware of their terrible political connection, but the potential is still there.)
Vedanta also has activities in a variety of commodities categories. Those commodities' supply networks may be experiencing challenges comparable to aluminum's, and that means anything like zinc, for example, may explode.
VEDL stock isn't only an intriguing aluminum investment, and it's also a generic approach to commodity trading.
Century Aluminum (CENX)
Century Aluminum could appeal to investors looking for low-cost aluminum companies that may still profit from the present upswing.
There's a lot of good news on the cheap front right now: share prices are now around $13. Century is far less expensive than some of its bigger rivals. Furthermore, according to one Tipranks expert, CENX stock has an average target price of $18. That suggests a potential gain of more than 40%.
Century Aluminum's financial results were revealed in early August. The figures were impressive. For example, during the quarter, the corporation received per ton aluminum pricing of $2,155, up to $215 over the previous quarter. Due to the metal's inaccessibility, premiums also climbed. Due to the surge in demand, the business received a $490 premium in the Midwest and a $175 premium in Europe per ton. Despite a 2.45 percent decline in shipments from Q1 and Q2, revenues climbed by almost 19 percent.
This company is growing, and CEO Jesse Gary is upbeat about the future, citing strong growth: "This has been especially true in the United States and Europe, where inventories have already returned to pre-pandemic levels and demand for value-added products, including low-carbon products, is near all-time highs."
Aluminum Stocks to Buy: Arconic (ARNC)
Arconic, the last aluminum stock on our list, is another aluminum manufacturer taking advantage of present demand. The corporation has made a strong recovery from the low pricing of last year. In reality, revenues in the second quarter of 2020 increased by 52% to $1.8 billion.
Arconic lost $96 million in the second quarter of 2020. In Q2 2021, the deficit grew to $427 million. On the surface, this seems to be a poor situation. When aluminum prices are at a 10-year high, why should the company's losses continue to grow? The solution is found in pension commitments and funds. Arconic set aside $423 million for "partial annuitization of U.S. pension liabilities accomplished in the quarter."
Arconic reported $187 million in adjusted EBITDA in the second quarter. The business also raised its full-year sales outlook from $7.3 billion to $7.6 billion, up from $7.1 billion to $7.4 billion before. Overall, you couldn't do much worse than ARNC stock.
Aluminum ETFs to Watch
ETFs, or exchange-traded funds, give an additional form of entry for investors looking to benefit from the aluminum market. Aluminum is not accessible as a physical investment asset in the same way gold, silver, and platinum are. Although aluminum futures are traded, many investors are inexperienced with futures trading and are hesitant to use such highly leveraged assets. Some aluminum exchange-traded funds (ETFs) provide unleveraged access to aluminum futures via a non-leveraged investment traded on a stock exchange and a globally diversified portfolio. One of the most significant benefits of ETFs is that they make access to overseas stock markets much simpler than it is chevalier. This is particularly crucial for investors searching for possibilities in a commodity like aluminum, where most mining and production takes place outside of the U.S. China, Australia, and Russia are the world's top producers of aluminum ore.
Aluminum is most often utilized in the building and packaging sectors and the automobile industry. One market price driver is increased demand for lightweight aluminum in automobiles to enhance fuel economy.
Aluminum is represented via commodities futures-based and equity-based exchange-traded funds (ETFs). An exchange-traded note is one of the most popular ETFs in this asset class (ETN). Although ETNs are included in typical ETFs, they are debt instruments susceptible to credit risk based on the issuer's financial soundness.
The iShares U.S. Basic Materials ETF (IYM) and the iPath Series B Bloomberg Aluminum Subindex Total Return ETN are two of the most popular ETFs for gaining exposure to the aluminum industry (JJU).
U.S. Basic Materials ETF (iShares) (IYM)
Although the iShares U.S. Basic Materials ETF is not solely focused on aluminum, it does provide investors with an equity-based ETF that has some exposure to the aluminum market via fund holdings such as Alcoa (A.A.) and Newmont Mining (NEM) (NEM). This ETF intends to replicate the performance of an index of basic commodities stocks in the United States. The fund is meant to give exposure to firms in the United States that produce raw materials, such as metals, chemicals, and forestry products.
The ETF has a 0.41 percent cost ratio and a low dividend yield of 1.48 percent. It's best for investors who want some diversified exposure to aluminum and other equities in the basic materials sector but don't want to put their money in bonds.
Total Return ETN iPath Series B Bloomberg Aluminum Subindex (JJU)
The iPath Series B Bloomberg Aluminum Subindex Total Return ETN is for investors looking for more direct investment in aluminum. This ETN is designed to mimic the possible returns of an unleveraged investment in aluminum futures contracts. The underlying index is one aluminum futures contract continuously rolled over into the following trading month nearby.
The fund charges 0.45 percent in annual investment fees. There is no dividend yield since this is a futures-based product. Barclays Bank PLC issues this ETN.
There are several methods to invest in the expanding aluminum business.
Aluminum is a valuable and versatile metal. As the global economy grows, demand should rise in the following years. As a result, firms that make aluminum and aluminum products should gain, making aluminum stocks an appealing investment opportunity.
In conclusion
While it is possible to make money investing in aluminum stocks, bear in mind that they are not risk-free like any other investment. Because these equities are prone to market and metal industry fluctuations, you should thoroughly examine your selections before investing. If you're new to investing or haven't looked at your accounts in a while, compare brokers to ensure you're receiving the most excellent features in your trading account.
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