The booming demand for "metal-intensive" technologies like data centers and electric vehicles should have ushered in a golden era for Alcoa (AA).
Aluminum prices are surging, partly because cooling systems, server racks, heat sinks, and other components inside data centers are all made of aluminum. Given such strong demand, the price rally is hardly surprising.
However, data centers consume enormous amounts of electricity, and power prices are skyrocketing. Bank of America data shows that in the U.S. alone, electricity demand growth over the next decade is projected to be 5 to 10 times higher than the previous decade.
This poses a major challenge for aluminum smelters. Aluminum production is extremely energy-intensive, and without cheap electricity, smelters simply cannot operate.
Even if power supply weren’t enough of a hurdle, the industry faces pressure from overseas competitors ramping up supply. Jefferies notes that Indonesia, a major global bauxite supplier, is steadily increasing refined aluminum output to become an industry leader, while China—the world’s top aluminum producer—is doing the same.
Alcoa, which has seen near-stagnation for years due to smelter closures, is now trying to expand capacity amid surging demand. From data centers to power transmission equipment, diverse needs are also supporting aluminum stocks. For instance, shares of Alcoa and Century Aluminum (CENX)—the only two remaining U.S. smelter operators—have recovered from April’s market turbulence and are up year-to-date.
"In an increasingly energy-intensive world… aluminum is essential for building infrastructure," said Charles Johnson, president of the Aluminum Association.
Yet, while tech giants' data center boom creates new aluminum demand, their "insatiable" power appetite—and willingness to pay above-market rates—is hindering domestic smelter expansion, reducing aluminum supply for the "AI arms race."
**Aluminum Production Process** Aluminum undergoes multiple stages before becoming usable metal for cooling systems or battery-powered devices. First, bauxite is mined; then, it’s chemically processed into alumina.
The final step—smelting alumina at over 1,700°F (927°C) to extract metal—is highly energy-intensive. Producing one ton of aluminum consumes ~14 MWh, enough to power a U.S. household for nearly 1.5 years or drive a Tesla (TSLA) Model Y over 50,000 miles (80,000 km).
A new U.S. smelter would need annual power equivalent to cities like Boston or Nashville, per the Aluminum Association.
Theoretically, aluminum is in its best position in years. Solar panels, wind turbines, server racks, and EV components rely on it, with U.S. EV aluminum use expected to rise over 12% by 2030. Prices are near three-year highs.
At Alcoa’s 2025 Investor Day, CFO Molly Beerman acknowledged that while the company may not fully meet AI-driven demand soon, progress is expected. However, she noted tech giants' power consumption (projected to grow 18% annually by 2030) squeezes smelters' margins, as they can’t match data centers' high electricity bids.
Smelters need 10–20-year power contracts at $30–40/MWh for profitability, but Beerman revealed tech firms like Amazon (AMZN) and Microsoft (MSFT) pay over $100/MWh. Century Aluminum secured a long-term South Carolina power deal to hedge against price spikes, but data centers' demand is so intense that Alcoa even considered selling assets to tech companies—who may value smelters' power infrastructure more than the metal.
**Mounting Challenges** Goldman Sachs predicts aluminum prices will drop ~15% to $2,350/ton by Q4 2026 due to oversupply, not recovering until 2030—further pressuring smelters.
The U.S. has just six smelters (four operational), producing ~670K tons in 2024—under 1% of global output. Even at full capacity, they’d meet only a third of domestic demand. The Aluminum Association urges government intervention to rebuild the industry, estimating $25B and five new smelters over five years are needed.
The White House has discussed reviving domestic aluminum supply chains, including Trump-era 50% tariffs on imports. U.S.-China trade tensions highlight reliance on China, which dominates global aluminum production and trade.
**Potential Relief?** Emirates Global Aluminum plans a 600K-ton/year Oklahoma smelter—nearly doubling U.S. output—while Century aims to restart its idled Holly Hill facility. But Jefferies analysts warn "power supply" remains the critical constraint. Alcoa CEO William Oplinger noted surging demand makes securing affordable long-term power contracts difficult.
Still, the industry hopes aluminum prices will rise as data center demand becomes apparent, boosting margins. Yet Oplinger cautioned: "We haven’t seen competitively priced long-term power in the U.S. In fact, the trend is moving the opposite way."
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