Current:
Aluminum: 2663.5
Variation:
Yearly 20.49% Monthly 11.72%
Expected Return:
Q1 0.68% Q4 5.75%
Aluminum futures have reached $2,675, marking the highest level since the five-month peak of $2,710 recorded on November 7. This surge is characterized by decreased supply from major producers and ongoing assessments of the impact of Chinese stimulus on manufacturing demand. In a significant policy shift, China announced it will eliminate tax rebates on exports of semi-manufactured aluminum products starting in December, a move that is expected to remove approximately five million tonnes of supply from the international market, according to industry estimates.
Consequently, bauxite prices have approached record highs as Guinea has halted Emirates Global Aluminum’s exports from the country. This disruption, coupled with decreased bauxite output from Australia and Jamaica, has further tightened supply for Chinese smelters, pushing ore inventory to its lowest levels since 2015.
Since the start of 2024, aluminum prices have increased by $284.50 per tonne, equating to an 11.93% increase based on trading of contracts for difference (CFD) that track the benchmark market for this commodity. Analysts project aluminum is set to trade at $2,681.53 per tonne by the end of this quarter, with expectations of reaching $2,816.59 in 12 months.
Investment Strategy for Aluminum Index in Industrial
Given the current market conditions and projections, a mixed strategy involving long positions in futures and call options, along with a protective put option for downside protection, is advisable. Here’s a step-by-step approach:
1. Long Position in Aluminum Futures: With the expected increase to $2,681.53 by the end of the quarter and $2,816.59 by the end of the year, establish a long position in aluminum futures. This position capitalizes on the projected upward movement driven by supply constraints and increased demand due to Chinese policy changes and global bauxite shortages. The historical annual return also supports a bullish outlook. 2. Call Options Strategy: Purchase call options with a strike price slightly above the current price ($2,663.50) to benefit from any further price hikes. Focus on expiry dates aligned with the end-of-quarter and year-end projections to leverage anticipated price levels of $2,681.53 and $2,816.59, respectively. 3. Protective Put Options: To hedge against potential downside risks such as unexpected global economic downturns or policy reversals in China, buy put options with a strike price slightly below the current market price. This will provide a safety net while maintaining potential for upward gains. 4. Short-Term Monitoring: Regularly monitor geopolitical developments, particularly around China's export policies and supply chain disruptions from Guinea and other supplier nations. Be prepared to adjust positions quickly in response to significant news impacting supply or demand. 5. Dynamic Adjustments: If prices exceed projections significantly before year-end, consider closing out positions incrementally to lock in profits, while maintaining some exposure to capitalize on further potential increases.This strategy leverages both historical data and future projections, balancing risk with opportunities for returns within the aluminum market context of Industrial.