Power constraints compounded by supply-demand imbalance—is aluminum going to be the next copper?

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Aluminum, long overshadowed by the glimmer of copper and other industrial metals, is now taking center stage due to a potential supply-demand structural shift.

According to Citi analysts, the global primary aluminum surplus will narrow rapidly by 2026, and from 2027 will see a supply shortfall of about 1.4 million tons, accounting for 2% of total aluminum consumption.

Meanwhile, fast-growing sectors such as electric vehicles, solar power, and data centers are driving a surge in aluminum demand. According to data from Wood Mackenzie, EVs are the biggest source of increased aluminum demand in the energy transition, with each EV using about 150 pounds more aluminum than gasoline cars. However, the highly electricity-intensive nature of aluminum smelting makes new capacity additions challenging.

Market valuations show aluminum remains undervalued. WisdomTree’s aluminum ETF has less than $40 million in assets under management, while its copper product has over $1 billion. Aluminum companies like Alcoa are trading at less than 13 times expected earnings for the next 12 months, far below copper giants like Glencore at close to 30 times.

A Historic Inflection Point in Supply and Demand

The aluminum market is undergoing a fundamental shift. Over the past two decades, aluminum prices have risen by about 44% cumulatively, much lower than copper’s increase of over 160%.

But this pattern is about to change. Citi analysts expect the global primary aluminum surplus will narrow rapidly by 2026, and from 2027 a deficit of about 1.4 million tons will emerge. Wood Mackenzie forecasts the supply shortfall will start in 2028 and last about five years. China, the world’s largest aluminum producer and consumer, is approaching its annual capacity ceiling of 45 million tons.

Electricity Constraints Become a Supply Bottleneck

Electricity supply shortages have become the key constraint for expanding aluminum production. Aluminum smelting requires breaking the strong aluminum-oxygen bonds in alumina via electrolysis, consuming massive electricity. According to the Aluminum Association of the US, a new smelter’s annual electricity consumption equals that of Boston or Nashville, Tennessee.

In potential emerging producers like Indonesia, power is also a limiting factor. New smelters may need to be paired with coal-fired power plants, but Western banks are reluctant to finance such projects.

America’s AI ambitions also make it hard to revive its former smelting glory. Alcoa operates two of the four remaining US smelters, and indicated at a September industry meeting that it must compete with tech giants like Amazon and Microsoft for power contracts. Tech companies are willing to pay more than $100 per megawatt-hour, while Alcoa needs power closer to $30 per megawatt-hour to run its smelters economically.

Energy Transition Spurs Structural Demand

Aluminum plays a key role in several rapidly growing industries. According to BloombergNEF, aluminum, along with copper, lithium, and steel, is one of the four key metals needed for the energy transition.

EVs are the biggest driver of aluminum demand growth. According to a CRU Group report, each electric vehicle uses about 150 pounds more aluminum than an internal combustion car, mainly due to aluminum’s high strength-to-weight ratio, helping reduce weight and extend range.

In solar power, aluminum is the second most used metal after steel. For power transmission, aluminum is increasingly replacing copper thanks to its lower cost, lighter weight, and suitable conductive properties. For data center construction, aluminum is widely used in radiators, cooling systems, and structural frames.

Copper’s price has risen over 20% this year, further driving substitution demand for aluminum. Mining giant BHP says when the copper-to-aluminum price ratio reaches 3.5–4 times, the market turns more to aluminum as a substitute. The ten-year average ratio is 3.5; currently, copper trades at about 3.9 times the price of aluminum.

Although scrap aluminum recycling can provide some supply, it cannot fundamentally resolve the supply-demand imbalance. In many applications, scrap aluminum must be blended with primary aluminum to meet quality standards. Wood Mackenzie’s Patel points out that impurities affect power transmission efficiency.

This year, a fire hit a New York aluminum rolling plant that supplies about 40% of aluminum for the US auto industry, causing Ford’s stock price to plunge. Wood Mackenzie analyst Shashank Sriram said this event reflects deeper structural vulnerabilities—US smelting has shrunk under high energy costs, and long-term investment in rolling, extrusion, and finishing has been lacking.

In the latest commodity bull cycle, a perfect storm is forming from soda cans to aluminum foil and beyond, with aluminum poised to become the next market hotspot.

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