Aluminum prices were strong for most of last year. However, prices corrected sharply toward the latter part of the year. Prices of base metals such as steel, copper, and aluminum fell with the steep decline in crude oil prices. But aluminum managed to end 2014 with a gain of ~4% on the London Metal Exchange (or LME).
Let’s now see how aluminum prices have fared so far this year.
Aluminum prices weak
The above chart shows the movement in spot aluminum prices. Prices have dropped ~5% so far in 2015.
Prices of all industrial commodities have dropped in 2015. Iron ore prices are down ~12%, while copper has dropped more than 6%. Prices of steel products have also come down. Spot hot rolled coil prices are down by ~20% in the US markets.
The SPDR S&P Metals and Mining ETF (XME) gives you diversified exposure to the metals and mining industry. It has ~35% exposure to steel companies and more than 11% exposure to aluminum plays.
Negative for aluminum companies
Lower aluminum prices negatively impact revenues for companies such as BHP Billiton (BHP) and Rio Tinto (RIO). Alcoa (AA) prices aluminum from its primary segment with a 15-day lag to aluminum prices. Century Aluminum (CENX) prices aluminum with a one-month lag to LME prices. Lower aluminum prices negatively impact the profitability of these companies.
Along with spot aluminum prices, investors should also track the movement in aluminum forward prices. We’ll take a look at that in detail in our next part.