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| U.S. primary aluminum industry |
The U.S. primary aluminum industry faces significant challenges in increasing domestic production, with energy costs emerging as a key obstacle. Despite President Donald Trump’s tariffs under Section 232, aimed at encouraging U.S. aluminum production, the cost of energy remains the most crucial factor determining the future of the industry.
Energy's Impact on U.S. Aluminum Smelting
The Aluminum Association has consistently emphasized the energy-intensive nature of aluminum smelting. According to Kelly Thomas, vice chairperson of the Aluminum Association, building a new aluminum smelter is akin to powering a major U.S. city for an entire year. For example, a new smelter requires a long-term power contract sufficient to meet the energy demands of a city like Boston or Nashville, Tennessee.
While tariffs have raised the Midwest premium for aluminum, allowing U.S. producers to increase prices, energy costs remain the dominant factor influencing smelting operations. The price of electricity accounts for roughly 40% of the total production costs of aluminum. In fact, 80% of the aluminum industry's emissions come from electricity consumption. Without affordable, low-cost electricity, U.S. producers struggle to compete in the global market.
Challenges in Securing Affordable Energy for Smelters
Building new U.S.-based aluminum smelters is a goal that many in the industry support, but it is increasingly clear that affordable energy is critical to making such plans viable. Companies like Century Aluminum and Alcoa have expressed concerns about the cost and availability of energy, with Century Aluminum citing energy availability as a major factor in its decision to restart production at its Mt. Holly smelter in South Carolina.
Meanwhile, Emirates Global Aluminum (EGA) has been pursuing plans to build a new smelter in the U.S. despite facing energy challenges. EGA has selected the Tulsa Port of Inola in Oklahoma as a potential site for its smelter, and they are in discussions with local utilities to secure the necessary power supply.
Energy and Long-Term Investment Decisions
The U.S. aluminum industry requires more than just short-term tariff protection—it needs long-term solutions for affordable and sustainable energy. The Aluminum Association’s report highlights that while tariffs can temporarily encourage production, the real issue lies in the availability of energy. The price of electricity in the U.S. remains significantly higher than in other countries, especially compared to Canada, where smelters benefit from low-cost hydroelectric power.
This disparity makes it difficult for U.S. aluminum producers to remain competitive. The ongoing rise in energy prices is not only an economic challenge but also an environmental one. As the industry faces growing pressure to reduce emissions, transitioning to renewable energy sources could help stabilize costs and reduce carbon footprints. However, current political and regulatory obstacles are slowing the adoption of cleaner energy solutions, further complicating the industry’s future.
ScrapInsight Commentary
The future of U.S. aluminum production is heavily tied to energy costs, which outweigh the effects of tariffs in the long run. To ensure sustainable growth, U.S. producers must prioritize affordable energy access, particularly through clean and renewable sources. This will be key in maintaining global competitiveness and reducing environmental impact.
