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Aluminum Trading Guide: How to Trade Aluminum

Date Modified: 06/10/2024

Aluminum (ALI) is a key commodity globally, with applications across various industries. Its supply and demand dynamics can significantly impact commodity prices, offering potential trading opportunities. Let's explore the aluminum market in this commodity trading guide:

An image of an aluminum factory.

TL;DR

  • Aluminum is produced from other elements not found in its pure form in nature.
  • The metal is extracted from bauxite ore.
  • Aluminum is a key industrial metal with a wide range of applications, from everyday items like soda cans to essential components in cars and aeroplanes.
  • With Plus500, you can trade Contracts for Differences (CFDs) on Aluminum. This allows you to speculate on bullish and bearish aluminum price movements without physically owning the metal.

Understanding Aluminum

Before getting started with aluminum trading, you need to understand what aluminum is and other basic information about it.

What Is Aluminum?

Aluminum is a strong, lightweight, and corrosion-resistant metal used in countless products.

While it's abundant on the Earth's crust, this commodity requires a complex process to extract and process. Bauxite ore is mined and refined into alumina, which is then turned into pure aluminum.

Unlike precious metals like gold (XAU) and silver (XAG), aluminum is classified as an industrial or base metal alongside copper (HG), lead, nickel, and zinc.

8 Fun Facts About Aluminum

  1. Aluminum is Earth's third most common element.
  2. It's incredibly lightweight, weighing a third as much as steel.
  3. Aluminum is a natural barrier to light, taste, and odour.
  4. Aluminum is highly resistant to corrosion thanks to a protective oxide layer.
  5. Aluminum is infinitely recyclable without losing quality.
  6. Aluminum cans are the most recycled beverage packaging in the world.
  7. Recycling aluminum saves 95% of the energy needed to create new aluminum.
  8. An impressive 75% of all aluminum produced is still in use today, highlighting the metal's incredible recyclability and reliability.

What Are the Major Uses of Aluminum?

Aluminum is a cornerstone in multiple industries. Its lightweight and durable properties make it indispensable in automotive manufacturing, reducing vehicle weight and emissions.

The construction sector also relies heavily on aluminum for its versatility and durability. Additionally, aluminum's infinite recyclability is crucial in packaging. The industrial metal is also used in the electrical and electronics industries.

Who Are the Main Aluminum Producing Countries?

China emerged as the undisputed leader in primary aluminum production in 2023, producing 41 million metric tons and outpacing the rest of the world.

Australia, while the primary bauxite producer globally, ranked seventh in aluminum production at 1.6 million metric tons in the same year. Still, bauxite is a key raw material for aluminum production.

Other major aluminum producers in 2023 included India, Russia, Canada, and the UAE.

How Are Aluminum Prices Determined?

Similar to the most traded commodities, there are various factors that can influence the price of aluminum, including:

  • Supply Dynamics: Changes in aluminum smelting capacity, bauxite availability, and energy costs can affect production levels.
  • Demand Drivers: Industrial activity, particularly in construction, automotive, and packaging, can significantly influence consumption.
  • Economic Indicators: Global economic growth (expansion vs recession), currency fluctuations in the Forex market (especially the American Dollar USD), and interest rates can act on aluminum demand.
  • Geopolitical Events: Trade policies, sanctions, and supply chain disruptions can cause price volatility.
  • Market Sentiment: Trader confidence and speculation can impact aluminum prices.
  • Sustainability Trends: Growing emphasis on recycling and reducing carbon emissions could be driving demand for recycled aluminum.

What Is Aluminum Trading?

Aluminum trading primarily involves speculating on short-term price fluctuations with relatively small timeframes. Traders typically focus on taking either long positions (speculating on price increases) or shorting (speculating on price decreases) to try to profit from all market conditions. With long and short positions, traders can therefore trade rising and falling markets.

Why Trade Aluminum?

Aluminum is a cornerstone of the global economy, with applications spanning from packaging to transportation. Its status as the most produced non-ferrous metal underscores its industrial significance. By trading aluminum, you can potentially capitalise on the fluctuations of this key commodity for our current economy and get exposure to global economic trends.

Is Trading Aluminum Risky?

Trading aluminum can involve significant risks. Price volatility can lead to substantial losses if not managed effectively. Moreover, trading aluminum typically involves futures contracts, demanding a solid understanding of derivatives markets. Gathering and analysing market data on the aluminum market can also be complex.

Who Is Involved in Aluminum Trading?

The aluminum market is a complex ecosystem with various participants, from primary players to financial institutions playing supporting roles:

  • Aluminum producers.
  • Companies involved in the transformation of raw materials, like bauxite and alumina into aluminum.
  • Industries and countries buying aluminum.
  • Companies dedicated to aluminum's transport and storage.
  • Financial derivative marketplaces.
  • Hedgers.
  • Other professional and retail traders.

How to Trade Aluminum: The Various Ways to Trade Aluminum

Your path to trading aluminum depends on your trading goals, strategy, and risk tolerance. Factors such as your trading experience, knowledge of the market, and chosen broker might also influence your chosen approach.

Let's explore the various ways you can use to gain exposure to the aluminum market*:

  1. Aluminum Futures: Contracts stipulating the purchase or sale of aluminum at a future date and price.
  2. Aluminum Options: Option contracts give the right, but not the obligation, to buy (call option) or sell (put option) a specific amount of aluminum at a predetermined price (strike price) on or before a specific date (expiration date).
  3. Aluminum Stocks: Shares of companies involved in aluminum mining, production, or processing, such as Alcoa (AA), Century Aluminum (CENX), Kaiser Aluminum (KALU), Rio Tinto (RIO.CHA), Constellium SE (CSTM), and Novelis (NVL), among others.
  4. CFDs (Contracts for Difference) on Aluminum Contracts: CFDs on aluminum allow you to speculate on the short-term commodity price movements without owning the physical metal.
  5. CFDs on Aluminum-Related Companies: CFDs on stocks that allow you to speculate on the movements of these companies' share prices without owning any aluminum.
  6. ETFs (Exchange-Traded Funds) on Aluminum Contracts: ETFs act like listed trackers that offer a diversified way to trade the aluminum market by tracking the price of aluminum futures contracts with a single financial product.
  7. ETFs on Aluminum-Related Companies: ETFs holding shares of aluminum-related companies.
  8. CFDs on ETFs on Aluminum or on Companies Involved in the Aluminum Industry: CFDs on ETFs related to the aluminum and the commodity market, either ETFs or shares.

*Availability based on regulation

Now that you understand the trading basics of Aluminum, you might want to start trading Aluminum CFDs on Plus500 in the Demo account. You can then switch to the real account.

FAQs

To trade aluminum futures and options, you can use different derivative marketplaces such as the London Metal Exchange (LME), the Shanghai Futures Exchanges (SHFE), and the Chicago Mercantile Exchange (CME).

Plus500's aluminum CFDs are typically based on the underlying aluminum futures contract traded on the CME. Standard trading hours for these futures are from 5:00 PM to 4:00 PM Central Time (CT), Sunday to Friday, with a one-hour break daily at 4:00 PM CT. However, Plus500's trading hours for aluminum CFDs might differ from these standard futures hours.

A CFD or Contract on Difference on aluminum is a financial contract that lets you speculate on whether the price of the commodity aluminum will go up or down without actually owning any aluminum. Before you get into aluminum CFD trading, you should learn how to trade commodities with CFDs.

From market research to trade execution, you can follow these steps to start trading aluminum CFDs on Plus500's trading platform: understand aluminum's dynamics, open a trading account, fund your account, develop your trading plan, learn how to trade commodities with Plus500, and open and monitor your CFD trading positions on aluminum.

To trade the commodity with CFD, traders often employ a combination of technical analysis and fundamental analysis with trading styles like day trading (very short-term) and swing trading (short to medium-term). Common commodity trading strategies like news trading, range trading, as well as support and resistance analysis among others, are widely used to capitalise on price movements.

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