Thursday Futures Thoughts - The Next Hot Market?

Gold, silver, copper, oil and gas have all had their day in the sun recently as the focus of the world's speculative attention.

A heavily used but seldom thought about commodity, by traders, may just be the next super hot market. This metal is used in 1000's of applications from aerospace to packaging to transportation. It's soft, pliable, strong and light making it ideal for the countless uses it has in the 21st Century.

In fact, it's the most heavily produced and used non-ferrous metal on earth. Have you guessed what metal commodity I am talking about yet?

It's Aluminum, traded on the NYMEX symbol AL, also on the London Metal Exchange LME. It's a very energy dependent commodity, meaning it takes a relatively large amount of energy to create, primarily electricity. Therefore, this is an important factor for the trader to take into consideration when analyzing potential trades in the metal.

For the purposes of this article, I am going to stick with the NYMEX contract AL. If you're interested in trading on the LME, here is the official information sheet from the exchange: www.lme.co.uk/aluminium_contractspec.asp.

Here are the very basic specifications of the aluminum contract AL. Aluminum is traded in 44, 000 pound units and is quoted in US Dollars. It trades in 25 consecutive monthly contracts and has a minimum tick size of 0.05 cents per pound or $22.00 per contract/tick.

The exchange imposes a maximum price fluctuation of .20 cents above or below the previous day's closing price. It's a physical delivery commodity, requiring storage warehouses in the Midwest USA to actually store the metal.

It's also cool to note that the physical shape of the aluminum being traded is either T Bars or low profiles sows weighing between 600 to 1735 pounds. It's traded both electronically on the GLOBEX platform and via open outcry.

Ok, I know that all sounds pretty mundane, so why am I so excited about this metal right now, and why do I think traders should take a look?

An up move last Friday caught my eye so I did a little research on just what may be the cause. Despite its recent pullback and widespread analyst reports that price was going to fall, there has been a 25% price increase just this year.

Aluminum is a very desirable metal to be used in automobiles, however, EPA regulations has stifled the use due to pollution concerns. This regulation was recently amended, allowing auto makers to replace steel with aluminum at a much lower cost.

This may cause a tremendous demand increase in AL driving prices even higher. Time will tell.

The EPA had been researching the regulation since 2006; however, their decision was considered early and caught analysts/traders by surprise.

Traders should take a look at AL as another trading vehicle or potential long term hold. There may be some more exciting developments in the future for this future.

Good Luck!

Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.