The United States has been witnessing a collision between AI data storehouses and aluminium smelters, and a tug of war for electricity. All over the US, facilities are faced with electricity generation and transmission challenges. While choosing a customer to supply power, they are opting for the data centre as it can pay more with a rapid scale and also accept shorter terms. Consequently, aluminium smelting depends on a stable and affordable electricity supply. However, owing to the volatile and unstable flow of electricity (both conventional and renewable), aluminium has to bear the brunt of competitiveness erosion.
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Primary aluminium smelting is highly vulnerable to electricity costs because power is an imperative input in the sector. According to the Aluminium Association, the power drawn by a contemporary smelter is equivalent to that of an entire city such as Nashville or Boston. Moreover, interruptions can wreck equipment, leaving long-term damage to financial viability, and therefore, it needs to run continuously. The smelters generally depend on long-term power supply contracts for sustainability, priced at an average of USD 40 per MWh. By contrast, AI data centres can handle steeper electricity prices, shift locations to redistribute power loads, and convert that into profitable high-margin digital offerings.
Inception of the US aluminium decline
The mid-twentieth century had seen the reign of the US as the top global aluminium producer, backed by hydroelectricity and a shielded domestic market. However, the fast-paced globalisation brought about a smelting shift toward low-cost electricity supplying regions like Norway, Iceland, Canada and the Gulf states. Soon after, they built cutting-edge capacities while the American facilities grew obsolete.
Only four plants persisted by 2020: in Indiana, northern New York, western Kentucky, and South Carolina. They were producing only 700,000 tonnes annually against a demand of 5 million tonnes, the gap being bridged by 72 per cent recycling and 14 per cent net import, mainly from Canada. They can no longer compete with hydro-rich nations due to surging power costs, environmental compliance issues and underinvestment in necessary areas.
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