The Energy Squeeze: How AI Is Threatening Global Metal Supply Chains

Aluminum and copper smelters, once the backbone of Western industrial power, are now engaged in a losing duel with Big Tech. In North America and Europe, these smelters are being squeezed by skyrocketing energy prices and unprecedented competition from data centers, especially those fueling AI development. This trend isn’t just troubling - it could upend global supply chains, accelerate the offshoring of critical manufacturing capacity, and tilt the energy transition in favor of resource-rich states.
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The Cost of Power: An Existential Threat

Electricity accounts for ~30% of aluminum smelting costs. In the U.S. and Europe, average energy rates for smelters have surged. In four U.S. states with smelting capacity, power now averages $73.42/MWh—well above the sustainable target of $40/MWh. Just think about your own home energy costs and how much they have risen in the past five years.

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Data centers, owned by trillion-dollar tech companies however, have no such constraints. A recent Microsoft-Conestellation deal reached $115/MWh, underscoring how much more tech giants are willing to pay, according to Reuters.

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In Europe, power prices remain “almost double those in the U.S.”, according to Norsk Hydro CFO Trond Olaf Christophersen, destroying west-smelter competitiveness.

Industry Voices Speak Out

“The most important factor deciding where you actually build a smelter is a long-term competitive power price… Big Tech had ‘a much higher ability to pay for the power compared to an industry like aluminium.’"
   — Trond Olaf Christophersen, CFO, Norsk Hydro

_{source: https://www.ft.com/content/deab6a77-12f2-4b66-a9f7-2625654fb493?utm_source=chatgpt.com}

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“Large-load customers remain willing to pay premiums to secure supply… proliferation of data centres… will only act to drive up competition for limited transmission capacity, forcing up prices.”
   — Alex Christopher, senior aluminium analyst, CRU
 

_{source: https://www.ft.com/content/deab6a77-12f2-4b66-a9f7-2625654fb493?utm_source=chatgpt.com}

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“What we need is competitive electricity prices, that's key… power prices in Europe were especially high.”
   — Guido Janssen, CEO, Nyrstar

_{source: https://www.ft.com/content/deab6a77-12f2-4b66-a9f7-2625654fb493?utm_source=chatgpt.com}

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These quotes spotlight a chilling reality: energy costs—not trade policy—are now the principal barrier to reviving Western smelting capacity.

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Hard Numbers: The Squeeze Is Real

According to a May 2025, article, US aluminium smelters vie with Big Tech for scarce power, by Andy Home, in North America, the number of primary aluminum smelters has fallen from 33 in 1980 to just 6 operating today - four fully functional and two partially running.

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Back in 2022, Andy Home explains in Europe's aluminium output slides as energy crunch bites that European production dropped by around 550,000 tonnes/year, with primary output falling nearly 13% in a single month—a staggering decline. And like most key metals, China is dominating. In fact, China now supplies over 50% of the world’s aluminum smelting output.

The Strategic Implications

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National Security: Western reliance on Chinese or Russian-Aluminum isn’t just economic—it’s strategic. Metals like copper and aluminum are integral to EVs, renewables, defense hardware, and AI infrastructure. While we've known this for decades, its only recently that governments and policies are beginning to react and fast-track many of these key projects.

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Green Energy Transition: Smelters’ retreat undermines the circular economy: recycled aluminum uses just 5% of the energy required for virgin production. Yet low recycling rates (e.g., 43% in U.S.) limit its scale.

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Infrastructure Shift: Data centres are migrating toward areas with robust grid capacity. In Europe, for instance, slower-growing hubs risk losing out on billions in AI-driven investment, according to Forrest Crellin's Poor grid planning could shift Europe's data centre geography, report says.

Potential Solutions and Policy Levers

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Long-term power contracts: Smelters need 20-year agreements at ≤ $40/MWh to remain competitive
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Government support: Grants, minimum-price de-risking, subsidized power—these are critical if reshoring is to work. Nyrstar and Century Aluminum require this backing, according to Smelters say they are losing power battle with Big Tech written by Camilla Hodgson and Jamie Smyth from Financial Times.

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Energy diversification: Nuclear—especially small modular reactors (SMRs)—and green hydrogen could offer stable base-loads. But deployment remains slow and capital-intensive.

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Boosting recycling: A faster path to building metal self-reliance lies in ramping up scrap recovery and secondary production.

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Looking Ahead: What Comes Next

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Short term: Expect more European smelters to curtail production. In the U.S., new plants are on hold unless power prices shift dramatically.

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Mid term: Data center growth without parallel industrial energy infrastructure upgrades risks hollowing out manufacturing bases.

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Long term: Without policy correction, smelting and processing will migrate to resource-rich, state-backed centers - hardening strategic dependencies.

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⚖️ The Battle for Power: Why Smelters vs. AI Will Shape the Future of Global Supply Chains

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The collision between old and new energy users—smelters and AI/data hubs—reveals a fundamental tension: Western economies are competing with themselves. The solution isn’t just technological—it’s political. If policymakers prioritize AI over raw materials security, they risk undermining the very foundations needed for the green economy they champion.

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