Wednesday, March 30, 2011

Alcoa (AA) (BHP) (RIO) (ACH) to Gain from High Copper Prices

Companies with significant exposure to aluminum, like Alcoa (NYSE:AA), Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Chalco (NYSE:ACH) and Rusal, should enjoy support as producers look for alternatives for certain products which can substitute aluminum for copper.

Aluminum is in general accepted as a cheaper substitute to copper in many applications, and many manufacturers are seriously considering switching to aluminum with copper reaching all-time high prices early this year.

Alcoa's products are used in a wide variety of products from aircrafts and automobiles to commercial transportation and packaging. The company also sells non-aluminum products like aerospace and industrial fasteners.

Copper is primarily used in electrical appliances and construction. About 65 percent of copper usage is attributable to electrical appliances because it is an excellent conductor of electricity. Construction applications make up the bulk of the remaining share of copper usage in which the metal is often used for roofing and plumbing as well as in automobile and ship manufacturing.

Copper prices are currently at an all-time high, above $4.5 a pound. In comparison, aluminum is priced at about $1.1 a pound. Given the costs of retooling manufacturing processes and the extra aluminum it takes to conduct the same amount of electricity as copper, it often becomes more economical to use aluminum instead of copper if copper prices rise above $3.50 a pound.

Alcoa closed Tuesday at $17.49, gaining $0.25, or 1.45 percent.


No comments: