Aluminum reshoring hits energy wall as AI and data centres surge

Aluminum is currently at the crossroads of several significant industrial and economic trends, with a hefty 50 per cent national security tariff in the US. Moreover, the metal is known for being energy-intensive, just as power costs are on the rise and it plays a crucial role in the world of electric vehicles and green energy technologies. Additionally, it's becoming more common in robotics applications and is essential as a heat sink material in the rapidly growing data centre industry.

According to the Wall Street Journal, aluminum prices have not really jumped yet, but the market conditions hint that there's some upward pressure building. This trend is happening even without the influence of current political factors, but mainly due to China's ongoing efforts to reduce production capacity.

At present, the major hurdle in the US–Canada trade talks is the fact that about 40 per cent of the US's aluminum supply comes from Canada, especially from Quebec, where they benefit from affordable hydroelectric power for production. This week, officials from both nations are sitting down to negotiate an agreement that could help lower the existing 50 per cent tariff.

In this situation, Alcoa is likely to come out on top, as about 75 per cent of its North American production is located in Canada. Right now, the company is trading at 5 times its EBITDA and 13 times its earnings, which shows it has a low level of debt. However, it's worth noting that Alcoa faced USD 95 million in tariff costs during the second quarter and those expenses have been climbing in the following periods.

Note: This article is published in accordance with an article exchange agreement between Mysteel and AL Circle.