Steelmakers are warning of a high-stakes competition from data centers for electricity

Executives from European and American smelting companies are reporting that consistently high electricity costs and intense competition for electrical resources from technology giants are impeding their industry's expansion. The American Aluminum Association notes that smelters typically seek long-term contracts with electricity prices around $40 per megawatt hour. In contrast, technology companies are frequently offering $100 per megawatt hour or more for electricity agreements to power their data centers, which are essential for the artificial intelligence boom.

This competition is particularly acute in the U.S., where technology companies' willingness to pay premium prices for electricity is driving up costs. Trond Olaf Christophersen, CFO of Norsk Hydro ASA, emphasized that electricity constitutes about one-third of aluminum smelting costs, making long-term, competitive electricity prices the most critical factor for building a smelter. He highlighted that technology giants' willingness to pay significantly higher prices for electricity far surpasses the financial capacity of traditional industries like aluminum smelting.

Analysts like Alex Christopher of market research firm CRU anticipate that the surge in U.S. data centers will intensify competition for limited transmission capacity, further escalating electricity prices. Consulting firm Wood Mackenzie predicts that U.S. electricity prices will continue to rise, as heavy users are prepared to pay a premium to secure their power supply. This situation creates a challenging environment for smelters, who are struggling to maintain competitive operations given these rising energy costs.

However, it's worth noting that Electric Arc Furnace (EAF) steel producers have a unique bargaining chip. CMC CFO Paul Lawrence and Nucor Corp. CFO Jack Sullivan pointed out their symbiotic relationship with utilities, as they can temporarily curtail production during peak electricity demand, helping to stabilize the grid—an ability data centers lack. Despite this, data centers are drawing skilled tradespeople like welders and electricians away from steel mill projects with better wages and working conditions, creating a different set of challenges for steel manufacturers.