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Executives say the fierce battle with large-scale technology is hampering efforts to line up the strategically important metal processing industry to re-shore, re-shore, and re-shore.
Washington and Brussels provide multi-billion dollar taxpayer funds for smelting, processing and mining projects of metals such as copper and aluminum to help break China’s stranglehold in the industry. The US also imposes punitive tariffs on imports to protect domestic industries.
But senior executives told the Financial Times that they needed more help to make Western smelting and processing profitable, but Silicon Valley companies are pushing the costs of US power.
“The most important factor is that determining actually building a smelter is a long-term competitive electricity price,” he said, accounting for about a third of the cost of an aluminum smelter.
He said in the US, smelters were fighting for power contracts with technology groups, but they were willing to pay much higher to develop the data centers that underpin the artificial intelligence revolution.
Big Tech has “a much more capable of paying power compared to an industry like aluminum,” Christophersen said.
A mining veteran characterized the dynamic as “(US aluminum company) Alcoa vs. Google, not Alcoa vs. China.”
Smelting is an energy-intensive but important step in the production of metals essential for a wide range of industries, from energy to defense and technology. China controls the sector, and smelters in Europe and the US are increasingly struggling to compete with the scores of factories supported by many new states.
China currently manages more than half of the world’s smelting capacity of aluminum, according to the US Geological Survey. It is also led to the treatment of other important minerals, such as rare earths and lithium, which are trends associated with policymakers in the US and Europe.
The smelter required long-term contracts for electricity at a cost of around $40 per megawatt hour, while the leading high-tech companies had written contracts worth more than $100 per megawatt hour, the American Aluminum Association said this year.
“Large customers are willing to pay premiums to ensure supply,” said consulting firm Wood McKenzie, adding that U.S. electricity prices will “grow effectively steadily.” Alex Christopher, senior aluminum analyst at the Market Analysis Group CRU, said the surge in US data centers would “act solely to limit transmission capabilities and encourage competition to enforce prices.”
The Aluminum Association estimates that a single new aluminum smelter will use roughly the same amount of electricity each year as cities like Boston and Nashville.
While US electricity prices are below European electricity prices and continue to rise following the energy crisis caused by the war in Ukraine, last year’s average cost was Canada’s average cost, with Norway nearly doubled, according to data provided by Hydro.
Guido Janssen, Chief Executive Officer of Zinc and Nilstar of Reed Company, said many Western smelters operate with thin margins of razors. “What you need is a competitive electricity price, that’s what matters,” he said, adding that electricity prices in Europe are particularly high.
Opening new smelters in the US and elsewhere also requires government support, such as grants and “relieve risk” mechanisms.
Nyrstar plans to expand its US facilities to enable the production of germanium and gallium, essential to the defense and technology sector. However, Janssen said government funds need to make profits. We are currently discussing how to secure financial support.
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The company’s main smelter in Australia was to create losses that “we don’t see this change” without government support, Janssen added.
US authorities are in talks with two Chicago-based Century Aluminum Company and Emirates Global Aluminum over the incentive to build the first US aluminum smelter since 1980.
EGA said the project is subject to a company that secures “competitive long-term power source” and government financial support. Century declined to comment.
