Transformer supply in crisis! Global shortage may persist until 2029.

Transformer supply in crisis! Global shortage may persist until 2029.

```

Global power transformers are entering a long cycle where “supply cannot keep up with demand.” Citi articulates the central issue of the industry bluntly: it’s not about short-term surges in demand, but rather the fact that capacity expansion, delivery, and labor capabilities all lag behind grid upgrades, power generation expansion, and new loads from data centers.

According to ChaseWind Trading Desk, Citi Research analyst Pierre Lau wrote in a report, "We are optimistic about the global power transformer industry and expect supply shortages to persist at least until 2029." This judgment is based on a set of “hard constraint” supply and demand calculations: even with leading manufacturers expanding capacity, the gap will continue to accumulate over the next three years.

According to Citi’s calculations on global high-voltage (>100kV) power transformers, the supply gap compared to demand in 2025 will be about 30%, and annual supply will still fall short of annual demand from 2026 to 2028; cumulative shortages will continue rising from 708 GVA in 2025, reaching a peak of about 1699 GVA by 2028.

The industry’s outcome is more of a “price cycle” than a “volume cycle”: supply shortages mean longer delivery times, rising prices, and orders concentrated in manufacturers with the ability to realize production capacity. Citi’s stock-picking logic is consistent—priority is given to companies with clearer order volume and expansion paths, while companies with equally strong fundamentals but obviously higher valuations than the sector average are rated neutral.

The gap is not just one or two years: Cumulative shortage peaks in 2028

Citi breaks down the gap into two layers: the annual gap narrows year by year, but the cumulative gap keeps expanding until 2028.

2025: Global supply about 2358.5 GVA, demand about 3066.0 GVA, annual shortage about 707.5 GVA (approximately a 30% gap relative to demand).2026-2028: Annual shortages of approximately 522.2/325.2/143.9 GVA, respectively.From 2029: Annual supply slightly exceeds annual demand (about 47.2 GVA “surplus” in 2029), but cumulative shortage remains unresolved by 2030.

There’s another detail in these calculations that is easily overlooked: concentration among leading companies is declining. Citi estimates, based on production capacity, that the market share of the top ten manufacturers will fall from 79.4% in 2025 to 72.6% in 2030. Capacity is expanding, but “effective increments” in supply are dispersed and the pace of realization is inconsistent.

Capacity expansion can't stop shortages: Production capacity and skilled workers are both bottlenecks

Citi does not deny the momentum in capacity expansion. They estimate that global high-voltage transformer production capacity will increase by 53% from 2025-2028, and provide annual growth rate assumptions: 2026E/2027E/2028E at +17%/+15%/+13%, respectively; stretching to 2030, the cumulative increase is about 95%.

The issue is that two bottlenecks are more like “slow variables”:

Lack of skilled workers: Citi singles out “shortage of skilled workers” as a barrier causing supply shortages which will take years to alleviate. Expanding production lines does not immediately translate to stable deliveries, as the training cycle eats up part of the marginal effect of capacity expansion.Tight supply chains for key materials and components: The report cites industry consultancies, highlighting America’s high dependence on imports: Wood Mackenzie estimates imports account for about 80% of U.S. power transformer supply (distribution transformers about 50%). With this structure, trade and tariffs more directly map onto costs and delivery times. U.S. GOES (grain-oriented electrical steel) supply is highly concentrated (only one supplier, AK Steel), copper windings may also become production bottlenecks; plus the U.S.’s 50% copper tariff, the “friction cost” on the supply side is harder to dissipate.

Citi also gives a realistic constraint on capital expenditure: in the U.S., building high-voltage (>220kV) transformer capacity requires about $450-500 million per 1 GVA of capacity, according to their research; Japan, South Korea, Europe, and China have relatively lower unit capex. Capacity expansion is not absent, but it happens slower and costs more.

Two driving forces on the demand side: power grid and generation, data centers

Citi divides demand growth into two parts: “traditional rigid demand + new load.”

First is continued investment in the grid and power generation. The report cites IEA data, stating that developed economies and China together account for about 80% of global grid investment in 2024; U.S. about $100 billion, EU about $60 billion. Citi also quotes Bloomberg NEF: in net-zero scenarios, global grid investment will grow by about 12% annually until 2030, reaching $777 billion in scale.

Second, data centers raise the power consumption curve. Citi references its U.S. research team’s upward revision of capex for hyperscale cloud providers: assumptions for capex growth among several hyperscalers have been raised from the previous 18% (CAGR) to 28% for 2025-2030. If these assumptions materialize, the duration of transformer shortages will not be easily fixed through mere capacity expansion.

For a more order-centric breakdown, Citi estimates based on new orders at Korean transformer manufacturers under their coverage: in U.S. power transformer demand, the grid accounts for 40-45%, power plants 30-35%, data centers 20-25%. This explains why the industry is increasingly sensitive to AI and data centers—they have already become part of the demand structure.

Supply-demand tension is first reflected in pricing and delivery times. The report cites Wood Mackenzie: since 2019, unit costs for U.S. transformers of various types have increased markedly—generator step-up transformers by about +45%, power transformers by about +77%, distribution transformers by about +78% to +95% depending on specification.

Citi also adds a more “macro” price signal: FRED statistics show the U.S. power and distribution transformer PPI reached 366.6 in January 2026, up 6.2% year-over-year. Citi expects the upward price momentum to continue, the core reason being that shortages haven’t ended.

Citi says shortages dictate price, price determines profit and valuation. The key variables for this chain are spelled out clearly:

Whether data center capex and power demand keep getting revised upward: this is a source for possible further acceleration in demand and will directly prolong the shortage cycle.Compounded effects of tariffs and reliance on imports: the U.S. depends heavily on imports; tariffs not only raise costs, but also likely lengthen delivery times.Capacity expansion isn’t just about announcements: production line construction, scaling up operations, training skilled workers—these all harden supply elasticity.

Citi also clearly believes that conflicts in the Middle East have limited impact on global demand, since the region accounts for a small share of global transformer demand (about 6% according to the report). In other words, what determines industry prosperity is still the pace of grid investment and data center expansion in North America, Europe, and Asia-Pacific.

Risk warning and disclaimerThe market has risks. Investments should be made cautiously. This article does not constitute personal investment advice, nor does it take into account any particular user's unique investment goals, financial status, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their own circumstances. Investing based on this article is solely at your own risk. ```