The Malleable Market for Global Aluminum

Last week’s Investor Alert highlighted a Macquarie Research chart showing a recent notable upswing in aluminum production around the world. Following a huge dip in output in China and worldwide throughout 2009, China once again surpassed the rest of the world in producing the most aluminum.

China’s massive production makes sense considering the country consumes the most aluminum. According to Jeremy Grantham of GMO, China uses 40% of the world’s aluminum as it rapidly develops its railway transportation, increasingly purchases automobiles and demands more energy.

Aluminum’s popularity around the world is well-known: The International Aluminum Institute boasts that the metal is the third-most abundant element on Earth and second-most used metal after iron.

And justifiably so. Aluminum’s malleable, ductile and durable properties allow for a variety of uses. On a daily basis, the world consumes beverages packaged in aluminum cans and depends on vehicles – whether bicycle, train, plane or automobile – made from aluminum. The light but strong material makes up 80% of an aircraft frame, according to the Aluminum Association. Nearly three-fourths of aluminum is used in packaging (21%), construction (24%) and transportation (27%) alone.

The metal’s fame is not dependent on Americans’ consumption of beverages, but from the growing emerging markets, particularly in the construction and transport sectors. BCA Research stated that 2010 car production hit a new record. In “Booming Global Auto Market Good for Many,” I highlighted how the growing car culture in emerging markets such as China can have a huge effect on high-end components for cars, as well as commodities including aluminum.

Emerging markets’ demand for other vehicles is anticipated to grow as well. Worldwide bicycle production is “slowly creeping back toward pre-crisis highs,” and aircraft orders have doubled from crisis lows, says BCA. In Paris last week, the oldest and biggest world air show ended with an announcement that Airbus received its highest number of orders during any air show for airplanes ever. The Wall Street Journal (WSJ) reported that the company took in 730 aircraft orders for their more fuel-efficient version of the A320 family of single-aisle jets. Nearly 30% of this order came from a Malaysian carrier, AirAsia, which committed to purchasing 200 airplanes, valued at $18 billion, according to the WSJ.

For aircraft makers and aluminum producers alike, this order from the budget airline is just one example underscoring the importance of the Asian market and readies the runway for aluminum to take off in emerging markets around the world.

None of U.S. Global Investors Funds held any of the securities mentioned as of 3/31/11.

Frank Holmes is CEO and chief investment officer of US Global Investors. This first appeared in his Frank Talk blog.

Last week’s Investor Alert highlighted a Macquarie Research chart showing a recent notable upswing in aluminum production around the world. Following a huge dip in output in China and worldwide throughout 2009, China once again surpassed the rest of the world in producing the most aluminum.

China’s massive production makes sense considering the country consumes the most aluminum. According to Jeremy Grantham of GMO, China uses 40% of the world’s aluminum as it rapidly develops its railway transportation, increasingly purchases automobiles and demands more energy.

Aluminum’s popularity around the world is well-known: The International Aluminum Institute boasts that the metal is the third-most abundant element on Earth and second-most used metal after iron.

And justifiably so. Aluminum’s malleable, ductile and durable properties allow for a variety of uses. On a daily basis, the world consumes beverages packaged in aluminum cans and depends on vehicles – whether bicycle, train, plane or automobile – made from aluminum. The light but strong material makes up 80% of an aircraft frame, according to the Aluminum Association. Nearly three-fourths of aluminum is used in packaging (21%), construction (24%) and transportation (27%) alone.

The metal’s fame is not dependent on Americans’ consumption of beverages, but from the growing emerging markets, particularly in the construction and transport sectors. BCA Research stated that 2010 car production hit a new record. In “Booming Global Auto Market Good for Many,” I highlighted how the growing car culture in emerging markets such as China can have a huge effect on high-end components for cars, as well as commodities including aluminum.

Emerging markets’ demand for other vehicles is anticipated to grow as well. Worldwide bicycle production is “slowly creeping back toward pre-crisis highs,” and aircraft orders have doubled from crisis lows, says BCA. In Paris last week, the oldest and biggest world air show ended with an announcement that Airbus received its highest number of orders during any air show for airplanes ever. The Wall Street Journal (WSJ) reported that the company took in 730 aircraft orders for their more fuel-efficient version of the A320 family of single-aisle jets. Nearly 30% of this order came from a Malaysian carrier, AirAsia, which committed to purchasing 200 airplanes, valued at $18 billion, according to the WSJ.

For aircraft makers and aluminum producers alike, this order from the budget airline is just one example underscoring the importance of the Asian market and readies the runway for aluminum to take off in emerging markets around the world.

None of U.S. Global Investors Funds held any of the securities mentioned as of 3/31/11.

Frank Holmes is CEO and chief investment officer of US Global Investors. This first appeared in his Frank Talk blog.