The Evidence Says Aluminum Is Ready to Rally These long-term investment results from the aluminum market demonstrate one prominent trait that commodities share: Their prices do not trend steadily higher like the stock market does; they gyrate. They move from lows to highs, and back again – sometimes violently so. Because of this volatile tendency, many investors steer clear of all commodity-related investments. Fair enough. But whenever commodity prices are gyrating to the upside, they can deliver rapid gains.
As an added benefit, commodity prices usually deliver their biggest winnings when the stock market is losing. During the first few years of the 2000s, for example, the CRB Commodity Price Index soared as much as 300%, while the S&P 500 Index barely squeaked out a gain.
Some individual commodities, like crude oil, nickel and copper, rocketed more than 500% during that period.
History may be on the verge of repeating itself, or at least rhyming. During the last four months, the CRB Index has jumped 15%, as most major commodities have been outpacing the stock market by a wide margin. The biggest standouts would be gold and crude oil, which have both posted gains of more than 20% during the last four months.
These double-digit gains may be nothing more than “dead-cat bounces” that signify nothing. On the other hand, these bounces could be the work of a lively and spry commodity market.
Certainly, the supply and demand trends in several commodity markets suggest that prices will continue heading higher. For example, the inventory levels for aluminum, nickel, and copper at the London Metals Exchange (LME) have fallen more than 15% below their three-year average levels. Based on five-year averages, aluminum and nickel inventories are more than 40% below normal.
Meanwhile, demand seems to be gathering steam.
On the LME, for example, aluminum futures prices recently shifted into “backwardation” for the first time in nearly a year.
The typical pricing structure in commodity markets is called “contango.” That’s when the closest-dated futures contract is cheaper than the contracts that are further out in time. But when contango pricing flip-flops, or goes backward, the market is in backwardation. Based on current pricing, a tonne of aluminum for immediate delivery next month costs $2,568, whereas a tonne of aluminum for delivery in three months is $13 lower at $2,555.
This relatively rare backwardation phenomenon is a sign that buyers want their metal right now – not two or three months from now. Not surprisingly, periods of backwardation tend to coincide with periods of rising aluminum prices.
Perhaps that’s part of the reason why shares of Alcoa have jumped 50% during the last four months. They might be “sniffing out” a major aluminum rally.
If so, then Alcoa could very well be on the verge of outperforming the market. Another Metal Is in High Demand While demand for aluminum continues to grow, so does the need for another metal: lithium.
Because lithium is the lightest material that can store energy, it has become indispensable for the batteries that power the new digital economy.
So, it’s no secret the world needs more a lot more of this metal to power our phones, laptops, and electric vehicles. In fact, by 2040, global demand is projected to be 15X higher than it was in 2020.
So, where are we going to get the lithium we need?
Well, prospectors recently discovered a remarkable lithium deposit in a deserted area of Nevada. And if early tests are verified, there may be enough lithium to last 100 years at current projections.
That’s enough lithium to make 579 million Tesla batteries… and to potentially be worth a trillion dollars.
Just one company is poised to exploit this lithium deposit... and could be only months away from full scale-production.
Get the full story, and learn how to get the company’s name, here.
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