By Boris DUBOV 

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Aluminium prices jumped to the highest level in nearly four years, and the local U.S. premiums reached a historical peak above $1/pound. This should benefit local producers like Alcoa (NYSE: AA) and Century Aluminum (NASDAQ: CENX), along with some international low-cost suppliers, while the downstream sector and consumers are already feeling the pressure.

Aluminum futures on the London Metal Exchange went above the levels not seen since April 2022, part of a broader base metal rally. Following the strong performance of the past months and continued bullish sentiment, analysts are revising their outlook upwards. Goldman Sachs is now forecasting an average $3,150/ton in H1 2026, up from $2,575/ton previously but still below current prices.

According to Bloomberg, aluminum prices in the U.S. have been rising faster than their international counterparts for much of the last year. Moreover, the regional premium for aluminum delivered to the U.S. market climbed above $1/pound for the first time in history.

The American aluminum industry has entered a new phase, resulting from a confluence of factors: continued high energy costs, capacity closures, ongoing trade disputes, and rising demand in various sectors. This benefits individual producers but creates significant risks for the economy.

The aluminum downstream sector (accounting for 98% of U.S. aluminum industry jobs) faces higher costs, supply bottlenecks, and volatile pricing. Industries like automotive, beverages, aerospace, construction, and packaging are already seeing price hikes and losing competitiveness. At the onset of this new normal, Alcoa CEO Bill Oplinger estimated the total number of 100,000 jobs at risk. Such a scale of events could have a significant impact on the upcoming mid-term elections already this November.

In response to the new price levels, companies are cutting capacity, redesigning products to cut aluminum use, or switching to substitutes like steel or plastics, and passing the costs on to consumers where possible. This concerns a wide range of goods from food and appliances to cars and building components. Thus, American consumers are in for a shock, while higher aluminum prices are adding millions in expenses for manufacturers, industry observer Andy Home notes. Grocery prices are also being pushed higher.

The benefits of this price situation in the global aluminum industry are distributed very unevenly across the sector. The Middle Eastern producers enjoying low-cost power have been on the rise in recent years. They capture the pure commodity price boom and are earning high margins for further production development and market takeover. Companies, including Emirates Global Aluminium, are increasing output capacity in 2026, primarily through recycling expansions and investments, though primary smelter growth is more measured. Saudi Arabia aims to be positioned among the top 10 aluminium producers globally and has invested over US$12 billion in aluminum-specific projects.

The Chinese producers are not directly capturing the U.S. premium, but benefit from the tight global market. The country is a net exporter of semi-fabricated products (like aluminum sheet, extrusions), and high global prices make their exports more profitable, while domestic prices often trade at a discount to the LME. Meanwhile, with limited direct losses from tariffs, both Chinese and Middle Eastern producers benefit from supply redirection and sustained profitability amid a global deficit.

Financial and market analysts, as well as the media link the situation to Trump’s decision in summer 2025 to increase tariffs on aluminum to 50% and extend them across a wide range of aluminum products. Still, it should be clear that the major moves leading to the current state of things were made during the previous administrations.

Since the 1980s, soaring power costs have been the leading cause of large-scale aluminum production capacity closures. Over the past two decades, the number of smelters in the United States has dropped from 24 to 4, according to the Aluminum Association.

During his first term, the Trump administration has put the then-largest international producer of primary aluminum, UC RUSAL, on the Department of the Treasury SDN list. The following market turmoil even made the European Union address the Congress to support lifting sanctions on the Russian aluminum company. The change in its ownership and management allowed the U.S. administration to remove RUSAL from the SDN list and restore the market balance.

Since then, Russians were an important supplier of low-carbon-footprint aluminum to the U.S. market, while the Chinese quickly expanded domestic production, taking the global lead. During the recent geopolitical crisis, Biden’s administration introduced a 200% tariff on Russian metal in 2023. This again had a negative impact on aluminum supply to the U.S., aggravating the situation for the local downstream sector.

All these moves have not helped U.S. producers to increase domestic production and replace the missing volumes. Metal consumers turned to inventories that have shrunk from 750,000 tons at the start of 2025 to below 300,000 tons, according to consultancies Harbor Aluminum and Wittsend Commodity Advisors.

A helicopter view on the industry suggests that the solutions for the U.S. downstream sector and consumers would mostly take months, if not years. Discussions about in-country new capacity or restart of idle facilities are underway. Century Aluminum’s Mt. Holly plant is expected to return to full capacity by June. But it will add only 50,000 tons, whereas bringing down the prices and premiums requires additional hundreds of thousands of tons flowing to the market. A handful of greenfield projects that could possibly provide this volume are still several years away from producing the first metal.

Interestingly, barred from the American and European markets, UC RUSAL maintains its production volume at around 4 million tons a year, with 100% of its aluminum having a low carbon footprint. Critical for the green economy metal has found its way to China and is now contributing to the country’s rapid expansion in sectors like electric vehicles and renewable energy.

Looking at the recent geo-economic environment and the political dialogue between the U.S. and Russia, there may be a feasible scenario of a deal with Moscow. Trump has been speaking about strategic partnership between the countries, showing his business-oriented approach and strong interest in rare-earth metals. This pragmatic partnership could include the green aluminum that is crucial for American high-tech, energy and other industries. At least until the U.S. domestic production picks up pace.

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Original article:  www.investing.com