Aluminum’s High-Wire Act: Tariffs, Power, and the 9.6% Rally No One Saw Coming

When the rest of the industrial metals took a breather, aluminum quietly scaled a 9.6% gain over the past three months. Behind the curtain: a drama of trade politics, energy brinkmanship, and inventory chess that would make even the most seasoned commodities trader’s pulse quicken.

The Tariff Domino: When Policy Hits the Price Tag

Aluminum’s recent ascent was never going to be a slow burn. The spark came on March 12, when the U.S. administration hiked Section 232 tariffs to 25%—a move that ricocheted through the global supply chain and sent the Midwest Premium to a record 60¢/lb ($1,323/mt) by June. Suddenly, U.S. buyers were scrambling to lock in supply, and open interest in CME Midwest Premium futures hit an all-time high in April.

But the story was global. The European Union promptly counter-punched with its own tariffs on U.S. metals, while a 30% levy on Mexican aluminum loomed for August. Cross-border frictions added 2–3% to transaction costs, and the threat of further escalation kept traders glued to tariff trackers and executive orders.

Power Struggle: The Invisible Fuel of the Rally

If you think aluminum is just about bauxite and smelters, think again. Power is the secret ingredient—roughly 30% of U.S. and 45% of Chinese smelting costs stem from electricity. In the U.S., only four smelters are still running (down from 24 a decade ago), and every one of them is fighting an uphill battle against soaring energy prices. To remain viable, U.S. smelters need 20-year power contracts below $40/MWh; today, they’re often paying nearly double.

As energy contracts expired and tech-sector giants outbid manufacturers for new power deals, smelters idled or slashed output. The result? Domestic aluminum supply covered just a third of demand, pushing premiums ever higher and squeezing the physical market.

Inventory: The Disappearing Act

Inventories became the tightrope walker’s net. In July, LME warehouses reported just 466,000 tons, with social inventories in China dipping toward the critical 400,000-ton threshold. Each weekly draw—such as the 8,000-ton drop in early July—kept bears at bay and gave bulls ammunition. U.S. warehouse stocks briefly rose in May, but the overall picture remained one of supply discipline and just-in-time procurement.

With primary alloy PMI slumping to 36.5% in June (a five-point drop from May), fabricators were cautious, but any signal of restocking could tip the market into another rally.

China’s Fiscal Pyrotechnics

While the West battled tariffs and energy angst, China staged a fiscal fireworks show. A multi-trillion yuan stimulus focused on infrastructure—bridges, railways, hydropower—gave aluminum demand a sturdy floor. The People’s Bank of China’s monetary tweaks unleashed liquidity, and new local-government bonds funded a fresh construction boom. Even as Chinese aluminum exports to the U.S. fell 21% year-on-year in April–May due to tariffs, domestic demand from construction and electric vehicles picked up the slack.

Scrap Wars and the Case of the Vanishing Can

The secondary aluminum market became a battleground. Scrap prices staged an unexpected rebound, with baled used beverage cans (UBC) up 50 yuan/mt month-over-month. Domestic and overseas scrap tightened, and several secondary smelters shut down under cost pressure. With recycling supplying up to 95% less energy-intensive aluminum, any hiccup in scrap flows amplified the squeeze on primary producers.

What the 9.6% Climb Really Means

This wasn’t a classic demand-led rally. Aluminum’s 9.6% surge in three months was a mosaic of forced scarcity, policy brinkmanship, and cost-push inflation. Seasonal demand was weak—July is an off-season for fabricators—but the combination of record U.S. premiums, energy bottlenecks, and global trade tensions created a powder keg. When the dollar softened on dovish Fed signals, it only added fuel to the fire, making aluminum cheaper for foreign buyers and tightening the global market further.

Forecasts now call for $2,662/ton by Q3’s end and $2,786/ton in 12 months—but only if the high-wire act doesn’t wobble on new tariffs or an energy shock. For now, aluminum wears the crown of industrial intrigue, balancing on a wire spun from power grids, tariff walls, and the perpetual quest for the next scrap can.