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Aluminum Case

Essay by   •  February 3, 2011  •  Essay  •  376 Words (2 Pages)  •  1,395 Views

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Aluminum is known for its properties of being a strong, light weight and durable material. It is used widely in the manufacture of packaging goods, automobile, military machines, and many others. The market for the production of aluminum is also very popular as there are many available smelters worldwide. Many are state owned companies while others are private firms. Despite the differences, they are all aiming to increase the market share for themselves and establishing their profit goals.

Our client today is a multimillionaire private investor from Canada, who would like to find out about the conditions of the market today for the aluminum industry. This given report will be taken into account as a part of his decisions to whether purchase one of the aluminum smelter companies. The client declined to give out any information about the firm he is interested in. He would like this report to represent the big picture of the industry and avoid any bias recommendations.

During the month of November, we have gathered our researches to come up with the conclusion about the aluminum market. Based on the reliable information provided by several sources, the current price for 1993 aluminum is about $1,100 a ton. Current consumption of the world aluminum is 24.5 millions of metric tons and rising in the future. Total production is taken off with a 25.8 millions of metric tons being yielded in 1993 alone. Most of the manufacture of aluminum is controlled by the London Metal Exchange (LME), who also set out the price for the world market.

After analyze all the data, our recommendation to our client is to not invest in the aluminum industry. We believe that there has been an excess capacity in the market. Current existing firms are suffered with the lower demand than expected and a building up of inventory. Also, the industry does not look very attractive in our stand point of view. The information demonstrates a great requirement for new firms to enter into the market. Some of the reasons are the low in return of assets (ROA) and currently decrease in price level. We do not think it is a good idea for the client to tie up his assets by purchasing any aluminum smelter companies at this moment.

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