What Does The Market Have In Store For Aluminum ETFs? (JJU, DBB)

Aluminum prices are up 30% this year, currently resting near $1,980 per tonne, and that has some analysts saying the industrial metal is overvalued. That makes sense as there really hasn't been a corresponding uptick in demand to support aluminum's bullish ways.

Of course the higher prices are leading to production increases and Barclays Capital estimates global aluminum production will increase by 29% in 2010. Remember aluminum is used to manufacture automobiles, aircraft, and new home components and those haven't been the most robust markets as of late.

The other side of the coin is that China believes rising production costs at home can support aluminum prices for the next three years and this is worth noting as China is the world's largest producer aluminum producer.

No matter what the outcome, it may time to take a look at some ETFs with aluminum exposure. The iPath DJ AIG Aluminum TR Sub-Index ETN (NYSE: JJU is the only pure play option out there. JJU is thinly traded and is a more conservative bet than investing directly in aluminum futures.

The PowerShares DB Base Metals ETF (NYSE: DBB) is far more liquid than JJU and offers diviersification away from aluminum, though the metal accounts for nearly 23% of DBB's holdings.

The UBS E-TRACS CMCI Industrial Metals TR ETN (NYSE: UBM) and the iPath DJ AIG Ind Metals TR Sub-Index ETN (NYSE: JJM) also offer significant aluminum exposure.