Scarce electricity and tariff pressure - what is the future of American aluminum?

Primary aluminum smelting is highly vulnerable to electricity costs because power is an imperative input in the sector. According to the Aluminum Association, the power drawn by a contemporary smelter is equivalent to that of an entire city such as Nashville or Boston. Moreover, interruptions can wreck equipment, leaving long-term damage to financial viability, and therefore, it needs to run continuously. The smelters generally depend on long-term power supply contracts for sustainability, priced at an average of USD 40 per MWh. By contrast, AI data centres can handle steeper electricity prices, shift locations to redistribute power loads, and convert that into profitable high-margin digital offerings.

Inception of the US aluminum decline

The mid-twentieth century had seen the reign of the US as the top global aluminum producer, backed by hydroelectricity and a shielded domestic market. However, the fast-paced globalisation brought about a smelting shift toward low-cost electricity supplying regions like Norway, Iceland, Canada and the Gulf states. Soon after, they built cutting-edge capacities while the American facilities grew obsolete.

Only four plants persisted by 2020: in Indiana, northern New York, western Kentucky, and South Carolina. They were producing only 700,000 tonnes annually against a demand of 5 million tonnes, the gap being bridged by 72 per cent recycling and 14 per cent net import, mainly from Canada. They can no longer compete with hydro-rich nations due to surging power costs, environmental compliance issues and underinvestment in necessary areas.

First bout of tariffs  

Before the 2025 escalation, the US Midwest duty paid premium typically sat in the USD 450 to USD 550 per tonne range, reflecting the delivered physical cost of aluminum in the United States above the global benchmark price. 

Within months of the tariff increases, that premium rose to roughly USD 1,300 to USD 1,900 per tonne, a two-and-a-half to four times increase over the prior baseline. Over the same period, the base LME aluminum price increased by roughly USD 200 to USD 300 per tonne, on the order of 8 per cent to 12 per cent. The result was a sharp divergence between global aluminum prices and the delivered prices paid by US buyers, driven primarily by policy rather than underlying metal scarcity. 

The price increase did not address the binding constraints that prevented restarts or new builds. Electricity remained too expensive and too uncertain. Capital costs remained high. Policy risk increased rather than declined.

Second bout of tariffs

In 2025, the Trump Administration drastically increased tariffs on imported aluminum, invoking supply chain strength, national security, and job safeguards. Section 232 duties jumped from 25 per cent to 50 per cent across most origins. The motive was to raise prices to bolster domestic producers and encourage investments to revive smelters.

Prior to the 2025 surge, the US Midwest duty-paid premium remained around USD 450 to USD 550 per tonne over the global benchmark, capturing the extra delivery expense. Followed by the hikes, it soared up to approximately USD 1,300-USD 1,900 per tonne, increasing 2.5 to 4 times from the initial baseline. Meanwhile, the base LME aluminum price edged up to only about USD 200-USD 300 per tonne - an 8 to 12 per cent increase. This marked a prominent rift between international prices and US prices, fuelled mostly by policy instead of metal scarcity. Electricity margins as well as capital costs remained too high, unreliable, and policy hazards loomed large instead of shrinking. 

Downstream faces an uncertain future

Automobile manufacturing was one of the first industries to feel the impact, being big buyers that run slim margins. An electric vehicle has higher aluminum content for a lighter weight and better efficiency. EVs require greater amounts of frames, batteries, and thermal setups. A leap from USD 800 to USD 1,500 per tonne in delivered prices adds USD 150-USD 400 per vehicle, appearing in 6 to 18 months as the model refreshes and the budgets squeeze. Wherever the EV price falters, aluminum inflation hampers uptake and erodes competitiveness.

Electrification and grid infrastructure have aluminum as their integral organ, embedded in transformers, substations, lines, and structures of renewable energy, where materials claim 20 per cent to 30 per cent of transmission budgets. Price surge leads to raised rates, delay in projects or scalebacks. 

Renewables face hits in turbine parts, frames, and extras. Price hike reflects in the packaging sector too, soda and beer cans for instance, with an increase of a few cents per six-pack or case. 

These hit shelves rapidly in 3 to 9 months as contracts renew and pass-throughs cascade to retail prices. Higher aluminum price in electricity networks leads to capital hikes via a gradual rate surge, contributing to slow but steady rises, such as a few dollars monthly per household over a 3-to-10-year period. Construction channels the cost hike into frames, windows, and structural elements, leading to a climb in housing costs and yielding higher taxes or long-term debts.  

Limited room for substitution

Substitution and reliance on alternatives offer only slim and partial solace. While steel can somewhat replace aluminum in vehicles and construction work, it comes with heavy rust threats, weight drawbacks, and capability caps. Composites and plastics have already substituted for aluminum in several sectors, but have to grapple with recycling, eco, and sustainability challenges. 

2025 market risk

Tied straight to Trump Administration policies, capital markets in 2025 are pricing substantially higher risks. Tariff ramps, especially aluminum duty spikes, have bred uncertainty over long-term market entry and stability in price, raising demands on returns for heavy-industry initiatives. Repeated executive tweaks to trade norms have minimised investment outlooks while widening credit gaps for policy-vulnerable sectors.

Labour problems

The Administration's stringent immigration regulations and deportation push have constricted the labour market even more. They have curbed supply, increased the pressure of wages, and heightened potential odds of delays and stoppages. Compared to the steady trade, cheaper interest rates, and reliable manpower in the 2010s, yielding 6 to 8 per cent WACC, the US smelter initiatives of 2025 confront a range of 9 to 12 per cent (or higher) effective WACCs, factoring policy swings and labour squeezes, which amplify across builds of multi-year timelines. Data centres, too, need vast grid growth in conductors, substations, transformers, and transmission, all aluminum-laden, at a breakneck speed. Inflated tariffs, in turn, increase the cost of those outlays and timelines.

Long-term implications

Policies hiking electrification costs while failing to solve core problems hit the brakes in the state's shift to an electricity-powered economy. Even a change in leadership cannot make up for lost time and postponed investments.

Well-thought and strategic approaches are required to synchronise energy policy, transmission acceleration, trade stability, and targeted industry aid, spotlighting electrons, capital, and skilled labour as true bottlenecks. 2025 drives home the lesson that aluminum price hikes cannot resurrect smelters; instead, they inflate the bills. Markets will continue to favour data centres over smelters in power shortages. Reducing ambitions and realising reality to do the needful is a must so that the Americans can stop paying more without securing the intended industrial payoff.