Aluminum has been on a tear lately. That matters. After steel, aluminum is the most widely used metal, with countless applications, from planes to soda cans to electrification.
In the U.S., aluminum was trading at around $3,300/tonne in April, compared with an all-in price for physical delivery in the Midwest of about $5,500 now. The price has risen sharply in Europe and Japan, too, from around $2,500 to around $3,500. The picture is distorted by currency movements, but the fact remains that U.S. manufacturers are paying much more for aluminum than their international counterparts. The reason for the difference? Tariffs, mainly. The Trump tariff regime means that American manufacturers will have to work with significantly more expensive aluminum than their international competitors and American consumers will have to pay more for products that include aluminum.
Other than for certain sophisticated applications in, say, the aerospace industry, aluminum can be recycled almost indefinitely with no loss of quality, but increasing recycling rates will not be enough to meet the U.S.’s aluminum deficit, and the price of recycled aluminum is itself affected indirectly by tariffs. Markets work.
The U.S. can and does produce “virgin” aluminum, but smelting is extraordinarily energy intensive (aluminum is sometimes referred to as solid electricity). This gives an enormous advantage to smelters based in countries that can take advantage of large amounts of long-term cheap hydroelectric power. One such country is a place called Canada. As of May last year, smelting costs there were around $290/tonne as opposed to $550 in the U.S.
Oh.
U.S. tariffs on aluminum imported from Canada range from 25 to 50 percent, but while that may cancel the effect of the comparative advantage (there’s a phrase) that Canadian producers enjoy as a result of access to a long-term source of cheap power, the lack of availability of sufficient quantities of such power in the U.S. means that American companies and consumers will be paying more for aluminum, even if it has been produced domestically.
But what about new production here and the jobs that go with them?
Tariffs were meant to stimulate domestic primary aluminum production after a prolonged period of decline which left just four operating smelters.
The immediate impact has been limited to Century Aluminum’s (CENX.O), opens new tab restart of 50,000 tons of idled capacity at its Mt. Holly plant in South Carolina. The smelter will return to full capacity by June.
There are a handful of greenfield projects but these are several years away from producing first metal, even assuming they can compete with Big Tech for long-term power supplies.
Oh.
This view was backed up by the CFO of Hydro (formerly Norsk Hydro), a Norwegian company that has long been a major aluminum producer (Norway has abundant hydropower). In May 2025, he told CNBC that would-be smelter operators in the U.S. would be outbid for power by tech companies.
In February 2025, when the talk was of 25 percent tariffs on aluminum (on some products they are now 50 percent), Alcoa’s CEO (possibly a biased source, but even so) warned that the tariffs could cost 20,000 U.S. aluminum industry jobs and a further 80,000 jobs in sectors that support it.
Meanwhile, the U.S. remains dependent on imports of primary metal, and, as is noted in the Reuters report, these have been falling. Volumes were down by 14 percent in the first ten months of 2025 compared with 2024.
There is a supply squeeze, as Europe, no stranger to high energy costs, adapts to the loss of production from the Mozal aluminium smelter in Mozambique (high energy costs have bitten there too), problems at the Grundartangi smelter in Iceland (another country with cheap energy, in this case geothermal) and, as sanctions finally take effect, Russia, a source also cut off from the U.S.
Making the EU’s problems even worse is the introduction of the bloc’s Carbon Border Adjustment Mechanism, basically a tariff designed to punish countries that have not introduced EU-style climate regulation. Quite how a deindustrializing EU is going to develop its much-vaunted strategic autonomy remains a mystery.
But there is more.
Reuters:
Chinese operators are now running close to the government’s mandated capacity cap, meaning the world’s largest producer is at or very close to peak output.
Chinese production growth slowed from 4% in 2024 to 2% last year, according to the International Aluminium Institute…
China’s exports of semi-manufactured products, by contrast, fell by 11% [in the first eleven months of 2025), reflecting the removal of the tax rebate on outbound shipments in December 2024.
Heard enough?
No? Well, here’s Bloomberg’s reliably prescient Javier Blas, writing in October. First, he explains China’s pivotal role, a depressingly familiar story:
Thanks to its coal-fired power stations, the Asian giant has the cheap electricity needed to produce enormous amounts of aluminum. Thus, for the last 25 years, Beijing has single handedly supplied the world’s incremental demand for the metal, which now runs just above 100 million tons. [Emphasis added.]
As mentioned above, China is capping aluminum production, partly (but only partly) for environmental reasons. Instead, it is building smelters in Indonesia:
With plentiful coal, cheap labor, copious aluminum feedstock and little regard for climate policies, Indonesia is now a construction site for the likes of Tsingshan Holding Group Co., China Hongqiao Group Ltd. and Shandong Nanshan Aluminum Co. It echoes a similar Chinese move in the nickel market a decade ago and that transformed Indonesia into a top producer. . . .
If all the new smelters come into production, Indonesian output may rise fivefold by 2030, transforming the country into the world’s fourth-largest producer, behind only China, India and Russia, and keeping the global market well supplied. [Emphasis added.]
But that forecast comes with caveats. And 2030 is still some way off.
Adding to the pressure on aluminum supply is its use as a substitute for copper. Copper is a story for another time, but suffice to say for now, it was trading at $6.00/lb. on Thursday night, after a violent sell-off earlier in the day. That move suggests that pricing may be deep into speculative territory. Six dollars is well above the level of $4.25 a year ago.
Blas concludes:
The world faces a binary outcome: Either higher aluminum prices, spilling over the global economy, or a higher reliance on Chinese companies. Perhaps there’s a third outcome – and one that I think is most likely: We get higher aluminum prices but perhaps not as exuberant as the bulls are betting on, while Chinese output, via Indonesia, also increases, but not as much as the bears hope.
We will see.