AI Data Centers' Insatiable Power Demand Is Crushing the US Aluminum Industry

There's a cruel irony unfolding in the American industrial landscape. The AI revolution needs aluminum—lots of it—for the server racks, cooling units, radiators, and countless components inside every data center. But the very power demands of those data centers are making it nearly impossible to produce aluminum domestically.

The Perfect Storm

The boom in metal-intensive technologies like data centers and electric vehicles should be a golden age for US aluminum producers. Prices are strong. Demand is surging. Yet the industry is struggling to capitalize.

The problem? Aluminum production is extraordinarily energy-intensive. And data centers are consuming so much electricity—and paying premium prices for it—that power costs have become prohibitive for smelters.

The Numbers Tell the Story

Energy Consumption

To produce just one metric ton of aluminum, a smelter consumes approximately 14 megawatt-hours of electricity. To put that in perspective:

• That's enough to power the average US home for nearly 1.5 years
• Or drive a Tesla Model Y more than 50,000 miles

Power Demand Growth

According to Bank of America, US electricity demand is expected to grow 5 to 10 times faster over the next decade than it did in the previous one. Data centers are a primary driver of this surge.

How Aluminum Gets Made

Understanding the problem requires understanding the process:

1. Mining: Bauxite, an aluminum-rich mineral, is strip-mined from the ground
2. Refining: Bauxite is converted to alumina through chemical reactions
3. Smelting: Alumina is heated to over 1,700°F and chemically separated into pure aluminum

That final smelting step is where the energy problem becomes acute. Without access to cheap, reliable power, smelters simply cannot operate profitably.

Big Tech's Willingness to Pay

Here's where it gets worse for aluminum producers. Data center operators aren't just consuming massive amounts of power—they're willing to pay above-market rates to secure it.

When Microsoft, Meta, or Google needs electricity for a new AI facility, they can outbid industrial users. For an aluminum smelter operating on thin margins, competing for power against trillion-dollar tech companies is a losing proposition.

The Domestic Industry: Nearly Dormant

The US aluminum sector has been in decline for years. Smelter after smelter has shuttered as cheap imports and rising energy costs made domestic production uneconomical.

Today, only two companies operate domestic aluminum smelters:

• Alcoa Corporation (AA)
• Century Aluminum Company (CENX)

Both stocks have recovered from the April tariff shock and posted gains this year, buoyed by strong demand. But expanding domestic capacity remains challenging.

"In a world in which we are more energy intensive... it's going to be built with aluminum," said Charles Johnson, president and CEO of the Aluminum Association trade group.

The demand is there. The ability to meet it domestically is not.

International Competition Adds Pressure

As if power costs weren't enough, US producers face mounting competition from overseas:

Indonesia

Already a major global supplier of bauxite, Indonesia is steadily increasing its production of processed aluminum. The country is positioning itself as a commodity powerhouse, according to Jefferies.

China

The world's largest aluminum producer by a wide margin, China continues to expand capacity. With state-subsidized energy and lower environmental standards, Chinese producers can undercut US prices.

Investment Implications

For Aluminum Stocks

Despite the headwinds, aluminum equities have performed reasonably well:

• Strong demand provides price support
• Tariff policies may offer some protection
• Limited domestic supply could eventually drive prices higher

However, investors should be cautious about capacity expansion plans that depend on securing cheap power in an increasingly competitive electricity market.

For Tech Investors

The aluminum shortage is a reminder that AI infrastructure has real-world supply chain constraints. Data center buildouts may face:

• Higher construction costs as material prices rise
• Longer timelines due to supply bottlenecks
• Increased scrutiny over power consumption

For Energy Investors

The competition for electricity between industrial users and data centers creates opportunities in:

• Power generation (especially renewables with long-term contracts)
• Grid infrastructure
• Energy storage solutions

The Bigger Picture

The aluminum situation illustrates a broader tension in the AI economy. The technology sector's growth is creating demand for physical resources—metals, electricity, water for cooling—that can't be scaled as easily as software.

As AI continues to expand, expect more conflicts between tech's resource demands and traditional industrial users. The winners will be those who can secure reliable, affordable inputs. The losers will be industries that can't compete for increasingly scarce resources.

The Bottom Line

The AI boom is simultaneously creating unprecedented demand for aluminum while making it harder to produce domestically. Data centers need the metal for their infrastructure but are consuming the cheap electricity that smelters require to operate.

For investors, this dynamic creates both risks and opportunities. Aluminum prices may remain elevated due to supply constraints, benefiting existing producers. But domestic capacity expansion will remain challenging until the power equation changes.

The irony is stark: the AI revolution is being built with aluminum it's helping to make unaffordable.

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This article is for informational purposes only and does not constitute investment advice. Commodity prices can be volatile and past performance does not guarantee future results.