Aluminum recently soared to a 13-year peak, hitting an almost all-time high. Its largest level since 2008 had investors diving into stocks of the diverse metal, which is used in everything from laptops to license plates.
When Covid hit, asset prices crashed as investors rushed to sell-off stocks, spurred by fears of a market crash. The building and construction industry was one of the many sectors that faced delays as projects were put on hold due to a lack of funding, labor shortages, and lockdowns.
In turn, demand for aluminum, the second most widely used metal in the industry, suffered. The metal’s supply chain was also impacted by travel bans which forced migrant workers to return home, as well as a decline in production in the automotive industry, both ultimately driving the price down.
Although aluminium was not immune to the extensive impacts of Covid, though, the price of the nonferrous metal has since bounced back. According to a report by ReportLinker, the metal market is valued at $US108.14 billion in 2020 and is projected to reach a compound annual growth rate (CAGR) of over 5% in the next five years.
As construction starts to pick back up after the pandemic, the price in aluminium is predicted to rise. Due to the region’s rapid rise in new hotels, malls, and stadiums, Asia Pacific’s construction sector is the biggest in the world, and is a prime driver for a boost in the demand for aluminium.
As the world recovers from the pandemic and moves away from a state of oversupply, levels will slowly move towards a deficit. The demand for aluminum dipped 3% in 2020 but is predicted to grow 5% from 2021 to 2026.
In addition to demand ramping up due to construction, the metal’s use in renewable energy is also a top reason for its growth. Aluminium is widely used in solar panelling, and while Biden’s plan for 80% of the US’s electricity to be green by 2030 might not be totally realistic, projections are not far off—with reports that 30% to 50% will be generated by clean energy like wind and solar by then.
In addition to aluminium’s usage in clean energy, is also used in electric vehicles, an industry undergoing significant demand right now.
While volatility is inherent in commodity stocks due to their fluctuating prices, base metals like aluminum’s diverse application to high-growth industries including EVs make it a low-risk investment choice.
Investors would be wise to embrace volatility and hold aluminium stocks over the long term to reap the rewards.