Why Investing In Aluminum Stocks Could Pay Off Handsomely By Year End

In January 2008, solar companies were running amok on $96 oil. But if you took a closer look, you’d have seen that the industry was running out of power, and fast, unless they could build up polysilicon supply to keep up with demand.Thanks to a desperate influx of spending along with the insane increase in demand, the polysilicon market was in the midst of a veritable feeding frenzy. Any company with polysilicon supply had a license to print money.

In 2008, oil rallied above $143 a barrel on supply and demand issues. Oil companies, including domestic oil producers, skyrocketed as a result.

Supply and demand issues even forced coal prices to historic highs this year, taking coal-related stocks along for the ride.

It’s basic economics 101. Any company with supply in a market, where there’s heavy demand and low supply, has a license to print money. The same thing is happening in the aluminum industry.

Aluminum Could Skyrocket to $4,000 a Ton

Word on the Street is that tight supply and heavy demand could push the price of aluminum to an average $3,150 a tonne, or $1.43 a pound in 2008, and $3,525 a tonne, or $1.60 a pound in 2009. And it could rise as high as $4,000 a tonne over the next two years.

That follows the 2007 average of $2,640 a tonne, or $1.20 a pound.

And it’s mostly thanks to the structural boom in Chinese demand, which accounts for some 80% of global demand over the last three years. That growing demand, though, is being met with low supply.

Worse, according to UBS, the world aluminum market is heading for a 200,000-tonne deficit this year and in 2009, as coal supply becomes scarce and producers cut output. “We expect market fundamentals to continue to tighten as global restraints on energy supply grow and impinge on the aluminum industry,” they said.

Aluminum supply is also struggling to keep pace with demand because producers don’t have access to the electricity needed to create the metal. And as a result, historically high aluminum prices are expected to rise another 33% over the next two years.

What to Buy as Supply Remains Tight

Some of the companies on SC Trading Pit’s radar screen of aluminum stocks include:

• Alcoa (AA) at $33.87
• Alumina Inc. (AWC) at $17.06
• Aluminum Corporation of China (ACH) at $28.33
• BHP Billiton (BHP) at $80.20
• Century Aluminum (CENX) at $61.69

But the team is currently doing its due diligence on these aluminum-related stocks, including an under the radar stock that trades at only $7.90. Stay tuned. SC Trading Pit is looking to release the stock shortly.

Posted in Categories: Contributor, External Research, Stocks, USA.

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