Aluminum Trading and Pricing Explained

The Aluminum Association finds that electricity contributes to more than a third of the price of aluminum production. The process of creating aluminum demands electricity to turn bauxite into aluminum. Electricity pricing varies based on supply and demand, and when electricity demand rises, pricing will go up. The world’s top aluminum producers have no choice but to rely on electricity, though some have explored alternatives like hydropower. Still, any substantive move to hydropower remains far off in the future. 

Supply is a significant factor in the pricing of aluminum, and one element that influences supply is how smoothly things run at the mines and mills that make the aluminum. If a bauxite mine experiences a strike or an aluminum mill shuts down due to a health issue, that reduces the amount of aluminum available. Similarly, if a mine or mill faces trouble filling job openings, production may decrease. 

Production issues can lead to increased pricing for aluminum because the demand remains the same while the supply goes down. Keeping an eye on labor issues can alert you to pricing changes on the horizon. 

Technology innovations and differing demands across industries can influence the pricing of aluminum as well. If sectors heavily reliant on aluminum experience innovations or changes, that can increase demand for aluminum. Production adjustments and the growth of green energy, for instance, both lead to higher demand and pricing. 

The lion’s share of global aluminum production occurs in Australia, Brazil and China, so these countries have an outsized influence on availability. 

Government policies and regulations, which can change with new administrations and changing motivations, are also cost drivers of aluminum.