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The Real Story Behind Lousy Aluminum Prices

|Includes:Alcoa, Inc. (AA), CENX

I had been following aluminum for past three decades. Today, I am still so stunned by the very low prices for aluminum because other metals had already gone up many folds. Take copper from $1 to $4.50 at all time highs, or molybdenum at $20 up from $3 , nickel likewisely. Even lead and zinc went up a lot and is as valuable as aluminum now. This is very unusual.

Aluminum is the biggest metal commodity next to steel. Aluminum had been replacing steel at about two tons of steel for every one ton of aluminum. Not long ago, we wouldn't dream of using aluminum for car engines, wheels, components , we do now. Body fenders are now made with aluminum because of superior crashworthiness. Lightweightness is fast becoming the name of the game these days as long as no other sacrifices is made like safety, cost, etc. We lose steel at rate of about 1-2% to rust which may not sound much to you but it is money !! Rust is polluting land and water. I wouldn't be surprised to read that rust may cause cancer. Medical researchers are not exactly looking hard enough at rust yet.

Anyway, with the story about aluminum smelters popping up all over especially in China and Middle East, one would think that it will keep that way forever. Do you ? Aluminum is a very energy intensive metal to produce so why do we keep building so many new smelters on top of already so many antiquated smelters that still continue to humm along?

Investors are pouring capital into new smelter constructions but not in aluminum stocks these days. They will keep on until the antiquated smelter operators get the message. About half of the world's smelters are very likely candidates for permanent shutdowns. With demand growing at 3 million ton clip annually, it is not very hard to see the stubbornly excessive inventories disappear so quickly.

Industrial users tend to maintain same mentality of keeping things same as before because of reasons like cost, mantras like "why the bother to switch to different metal?", and probably the most important if not the stupidest reason above of all... why use less energy with lightweightness? Why not drill for more oil like before?

Inertia is the whole story behind the aluminum price depression. Investors already saw the writing on the wall while the doers still do the dilly-dally dance . Now at this writing ... we produce over a billion or two tons of iron/steel worldwide annually while aluminum is inching toward a measly 50 million tons annually. I believe that we are now entering the Decade of Aluminum with more decades to follow as we will produce as much aluminum as steel.

Which do you prefer your crutches to be made of ? Steel or aluminum?

Disclosure: I am long AA, CENX.

Stocks: AA, CENX