Commodity Profits from Almost
Free Power
by Dr. Steve Sjuggerud
August 31, 2006
I nearly burned myself the first time I took a shower in Iceland’s capital, Reykjavik…
Nobody told me, but the hot water in Iceland is extremely hot—because it comes straight out of the earth.
That’s not the only nearly free power in Iceland. Geothermal power, created by steam under the earth’s surface, is so cheap that Reykjavik actually has some heated sidewalks in the wintertime. And the country creates nearly free hydroelectric power by harnessing the flow of its natural and manmade waterfalls.
Almost free energy everywhere… courtesy of the earth. This makes Iceland an ideal place to locate energy-intensive projects… especially when you’re producing one of the world’s most important commodities, aluminum.
You see, energy is the single biggest cost in producing aluminum. For about a generation now, big companies haven’t cared too much about the cost of energy. Now that the price of oil has skyrocketed (along with other commodities) the cost of energy has soared. It caught a lot of people off guard.
And many aluminum producers that rely on “traditional” sources of power are shutting down. We’re seeing closures across the U.S., Europe, and even China.
That’s why companies that produce aluminum are heading to Iceland… to take advantage of its nearly free power.
To give you an idea of how cheap power is in Iceland, consider this:
Australian mining giant BHP Billiton actually ships over a hundred thousand tons of alumina from the Southern Hemisphere all the way to Iceland each year, simply to have one company there turn it into aluminum for them. Then BHP turns around and exports all that aluminum to wherever it’s needed on the globe.
If you’ve been a reader of DailyWealth for a while, you know that I believe we’re in a secular bull market in commodities that could last for many more years. And like most any raw material, the price of aluminum has been soaring lately. It’s up over 100% in the last three years.
In fact, aluminum prices have soared so high that thieves are beginning to steal it from public places. The Washington Post just reported, for example, that thieves tore out $14,000 worth of new aluminum bleacher seating from D.C.’s Ballou Senior High School.
Aluminum is one of the world’s most important commodities. Its light weight and high strength make it the single most important material for making airplanes, and it’s used widely in construction and packaging…
And if the price of power keeps going up, the only aluminum producers left standing will be the ones with dirt-cheap energy costs… like the ones setting up shop in Iceland.
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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