Many industries, especially building and construction, have been affected by the rising price of aluminum, which is very difficult to accurately forecast. Factors such as increased demand, inflation, war, and even natural disasters affect the price of the metal. But energy prices are especially important because of the amount of it used in production of the material. Should we prepare and consider the possibility of long-term increased metal prices, or will prices remain cyclical as they have in the past?

Most building products are fabricated from 6000 series aluminum that has been extruded. In the extrusion process, aluminum ingot, commonly referred to as billet, is heated, pushed through a die and into profile form. These profiles are worked, cut to length, heat treated, and finished to a variety of specifications. The extrusion process is energy intensive, including natural gas to heat the raw materials, electricity to drive hydraulic pumps, power for automation, and all the energy required by downstream production equipment.

In almost all aluminum manufacturing processes including extrusion, aluminum scrap is produced. Since scrap is recycled into secondary material, the price and market supply of scrap usually factors into metal pricing. Aluminum can be recycled infinitely and thus the overall impact of energy use is reduced. 

According to industry experts, the use of recycled metal in any aluminum product results in energy savings of up to 95 per cent over the use of primary metal. Recycled metal can be found in sheet, aluminum cans, and cast parts used in automobiles. Unfortunately aluminum is still in high demand and the energy savings has not translated into a drastic reduction in prices.

The Other Side of the Story
Aluminum is not the only building material whose cost is on the rise. Copper has seen a similar trend in the last year. Demand remains high for aluminum, copper and competing materials used in fenestration such as synthetic materials and plastics (PVC, polyethylene, and polypropylene). 

Only five years ago, metal pricing was in decline, demand was slow and energy prices were at lower levels. With demand, and the cost of fuel, at an all time high, one initially might conclude that energy consumption continues to drive aluminum prices. One might also conclude that if fuel prices stabilize so will the price of aluminum. Unfortunately this is not entirely true. The problem is that there is another side to the story—speculation. 

Almost every industry has factors that affect the day-to-day operations. Companies have to deal with rising transportation costs, a volatile labor market, and the soaring cost of healthcare. All these costs are measurable and are passed directly from supplier to customer. What has changed in the aluminum industry is increased speculation in the commodity markets. 

Commodity prices are influenced by speculators from outside the aluminum industry. No matter how much we analyze the process, the amount of energy that is consumed, or the effects of global recycling, speculation is the “wrench” that has been thrown into the mix. 

Individuals and companies alike have made and lost fortunes in an attempt to forecast the movements of the metal markets. In order to forecast where the markets are headed, many factors must be considered such as the production pace of the companies that mine the ore, the efficiency of refining process and the potential for production stoppages due to labor unrest. 

The fact is that aluminum is a commodity and we can’t try to approximate every scenario that might play out. The aluminum user needs to be concerned about keeping customers, maintaining lead-times and creating a competitive domestic product. Price does not keep customers; service does. What aluminum users must expect to pay for in the end is quality and service. It is only the quality of a product and the service provided that can be controlled, managed and made predictable.

USG
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