Commodity Investing: Maximizing Returns through Fundamental Analysis

CHAPTER 14

Aluminum

Aluminum is the third most common element in the earth's crust after oxygen and silicon, accounting for 8 percent of the ground we walk on. We don't think twice about aluminum as we remove our sandwiches from aluminum foil, drink soda from an aluminum can, and toss the foil and the can into the recycling bin. Yet 150 years ago, aluminum was more valuable than gold and platinum.¹ Of course, this was before the modern electrolytic method of producing aluminum was discovered in 1886. But even this example understates the value of certain forms of aluminum. Rubies and sapphires are no more than aluminum oxide with a sprinkling of impurities. Surprisingly, this same aluminum oxide is the feedstock for aluminum metal. The major difference is that the gems are crystals and the feedstock is powdered.

PROCESSING AND PRODUCTION

Primary aluminum processing proceeds in three steps: bauxite mining and milling, conversion of bauxite to alumina via the Bayer process, and conversion of alumina to aluminum via the Hall-Heroult process.

Elemental aluminum oxidizes too readily to exist in nature. Instead, aluminum must be recovered from aluminum hydroxide and aluminum oxide hydroxide (commonly known as bauxite) deposits. Bauxite deposits are found primarily in tropical regions, with 80 percent of world production coming from Australia, Brazil, Guinea, China, Jamaica, and India (see Figure 14.1). After mining, bauxite typically requires little additional processing other than removal ...