AI Is Squeezing Aluminum And Limiting Clean Technology Advances

The aluminum market is in turmoil. Owing to ongoing global dynamics, the market is at risk of tightening supply, squeezing prices higher, and disrupting operations.

Once a broad domestic industrial base has been reduced to a handful of primary facilities, with Alcoa Corporation (NYSE:AA) and Century Aluminum Company (NASDAQ:CENX) among the last smelter operators. Yet, their position has become more exposed as the country struggles with uncertainty over tariffs, which have distorted trade flows and elevated physical premiums.

Still, the Head of Metals Research at Bank of America Global, Michael Widmer, explained the key problem with aluminum smelting today.

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‘With all the discussion on tariffs and who is going to invest, it often comes down to just one metric, which is the power cost, and the unfortunate reality is that, anecdotally, I think data centres and AI can pay more than three times as much for power than a smelter would want to pay,” Widmer noted per MiningWeekly.

In the bank’s latest outlook for metals, he explained that the U.S. has now reduced its aluminum smelters from 20 in 1998 to only five. Building capacity requires cheap energy, yet if that energy must come from low-carbon sources, it can be a difficult square to circle.

“We’re not quite as bullish on aluminium as we are for copper, but we still have prices going above $3,000/t next year,” Widmer clarified.

The Global Supply Squeeze

The U.S. situation, however, is only one part of a broader global tightening. China, long the world’s dominant supplier, is constrained by a government-imposed cap on primary aluminium production. With the ceiling effectively fixed and domestic consumption still expanding, China cannot simply add new capacity to meet global needs as it once did.

That cap limits incremental supply, and when combined with disruptions elsewhere, it helps push buyers into more intense competition for the tons still available on the open market. As supply tightens, global prices rise not only because of immediate scarcity but because traders anticipate lasting constraints built into policy. Meanwhile, the International Aluminium Institute expects aluminum demand to increase by 40% by 2030 due to clean tech demand.

Such constraints might be pressing on the European market as well. Operational and power-related issues in Mozambique have raised an alarm. If South32 Ltd.’s (OTC:SOUHY) Mozal smelter doesn’t secure sufficient and affordable electricity by March 2026, it could shut down, taking about 10% of Europe’s supply with it.

AI’s Power Appetite 

These pressures have shaped both market expectations and corporate performance. ING Research now anticipates material deficits ahead, as slower global production growth collides with resilient demand. Their price target for 2026 currently sits at $2,900 per ton.

That deficit view is consistent with the physics of smelting, in which electricity accounts for nearly half of production costs. ING notes that a competitive smelter needs a 10 to 20-year contract with electricity costs around $40/MWh. Yet, tech companies are currently paying as much as $115/MWh.

As grids strain under high surging demand (particularly from AI data centers), smelters get priced out. Once curtailed, these facilities seldom restart quickly, tightening the market structurally.

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