Monday, 7 May 2012

Aluminium the Metal that has Never been so Inexpensive – Inflation Adjusted Historical Aluminium Price since 1900 in Pounds Sterling and US Dollars

 The Metal that has Never been Cheep - Aluminium

Aluminum is a silvery white metal used in a wide verity of industrial application and in consumer products.  It is the third most abundant element and the most abundant metal, in the Earth's crust.  Aluminum is a remarkable metal due to its low density and for its ability to resist corrosion via passivation.  Many of the structural components made from aluminium and its alloys are vital to the aerospace industry and are important in other areas of transportation and structural materials.

Aluminum forms strong chemical bonds with oxygen.  Compared to most other metals, it is difficult to extract from ore, such as bauxite, due to the high reactivity of aluminum and the high melting point of most of its ores.  For example, direct reduction with carbon, as is used to produce iron, is not chemically possible because aluminum is a stronger reducing agent than carbon.  Aluminium electrolysis with the Hall-Héroult process consumes a lot of energy.  Electric power represents about 20% to 40% of the cost of producing aluminum, depending on the location of the smelter.

There are some reviews of the aluminium market and price, but these don’t usually cover the long term price history or adjusted to account for inflation, so I thought that I would investigate.

The annual average aluminium price data came from the US Geological Survey and it dates back to 1900.  The historical UK Pound to US Dollar exchange rate data came from Lawrence H. Officer, "Dollar-PoundExchange Rate From 1791," MeasuringWorth, 2011 at  The prices were adjusted for inflation by converting the nominal price into the equivalent in 2011 US Dollars and 2011 GP Pounds Stirling.  The US inflation data came from the historical CPI from the US Department of Labor.  For the UK inflation the data came from Dominic Webb (2006) "Inflation: the Value of thePound 1750-2005" Economic Policy and Statistics Section, Research Paper 06/09, House of Commons Library, UK.  From this you get the following results shown in the graph below.

Chart showing the historic price of aluminium and the inflation adjusted aluminium price since 1900 to 2011 in Pounds Sterling and Dollars
Historical Annual Average and Inflation Adjusted Aluminum Price since 1900 in Pounds Sterling and US Dollars

The doted lines are the unadjusted nominal annual average aluminium price, and the sold lines are the inflation adjusted aluminium price.  The first thing that becomes obvious is that the unadjusted aluminum price was at its lowest in the late 1940s in both US Dollars and Pounds Sterling at approximately $331 and £82 per a metric tonne respectively.  Furthermore before 2010 the nominal price peak occurred in 2006 in both US Dollars and UK Pounds at $2,690 and £1,453 per a metric tonne respectively. 

However when you examine the inflation adjusted aluminium price, you notice that its lowest prices occurred in 2002 in US Dollars at $1,792 and in 2003 in UK Pounds at $1,190 per metric tonne.  These lowers were virtually matched in both currencies happened in 1992, 1999, and 2007.  The pries see in 2010, in both US Dollars and Pounds Sterling are comparably to the inflation adjusted prices through out the 1990s and 2000s.

The historic inflation adjusted aluminium prices in US Dollars and UK Pounds can be more easily seen in the chart below, which only shows the inflation adjusted price on a linear axis (non logarithmic, unlike the first chart).

Graph showing the inflation adjusted aluminium price is cheaper than most of the 19 century
Historic Inflation Adjusted Aluminum Price since 1900 in US Dollars and Pounds Sterling

The inflation adjusted price of aluminium was flat for the first 5 years of 20th Century whereupon it rose rapidly and peaked in 1907 at $24,000 and £20,150 per metric tonne.  From this peek it fell steady for the next 10 year, until 1941 were it experienced a sharp rapid increase, which coincided with the First World War (WWI) and fell back to its pre war prices by the 1920s.  The price remained fairly flat thought out the 1920s and 1930s.  There was a substantial decrease in the prices in the early 1940s, however from the late 1940s until the late 1970s the aluminium prises stayed pretty constant between $4,500 to $3,500 and £4,000 to £2,300 per metric tonne.

Using the price in 1900 as a baseline, the inflation adjusted aluminium price in UK Pounds and US Dollars was indexed.  This allows the examination of the relative price changes during this historical period of time more easily and is shown below.

Graph showing inflation adjusted aluminium price index to the price at 1900 equalling 100. m The graph clearly shows that the when inflation is accounted for the aluminium price in 2011 is a lot cheaper than it was in the 1950's, 1960's, 1970's and 1980's.
Historical Inflation Adjusted Aluminium Price since 1900 in US Dollars and GB Pounds, Indexed to 1900

The indexed price data clearly displays that the historic inflation adjusted aluminum price has fallen considerably since the 1900s.  Once inflation was accounted for the real price of aluminum by 2000s was approximately a tenth of what they were at the beginning of the 20th Century.  So from a historical perspective once inflation has been accounted for,  the price of aluminium has virtually never been cheaper.

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