Key Takeaways:
US electric-arc-furnace steelmakers face a power cost crisis as AI data center demand drives up electricity prices across the PJM grid.
PJM Interconnection wholesale power costs rose 76% in the first quarter from a year earlier, squeezing US steelmakers that rely on electric arc furnaces, the predominant method for making steel in the country.
"We've had stable electricity prices for decades, and now we think that's at stake," Rob Simon, chief executive of JSW Steel USA, which operates an electric furnace plant in Mingo Junction, Ohio, said.
Metallus, a Canton, Ohio-based specialty steel producer, said its electricity costs are about 70% higher since 2024, with annual increases running at about $15 million. PJM, the largest regional power grid in the US covering 13 states from the Midwest to the mid-Atlantic, forecasts that electricity demand in its territory will outpace supply by 6.6 gigawatts beginning in 2027 — the equivalent of about six or seven nuclear power plants.
The power crunch creates a conflicting dynamic for steelmakers. Data centers consume about 1 million tons of steel a year, valued at roughly $1.4 billion, according to analysts' estimates, but their voracious electricity needs are driving up the cost of making that steel. By 2030, data centers could use 9.5% to 15.3% of US electricity, according to a forecast by the Energy Department's Lawrence Berkeley National Laboratory. Steel industry executives warn that sporadic production outages are becoming more likely if power shortages force utilities to prioritize data centers over mills.
PJM's Supply Gap Triggers Emergency Auction
PJM is expected to conduct a supplemental power auction with electricity generators in September after earlier auctions failed to attract enough supply. Analysts expect record-high prices, which would hit large-load consumers starting in a couple of years. "Overall, the supply dynamics are incredibly tight," Hannah Rogers, senior associate at consulting firm Capstone, said. "As there are more and more data centers, we're expecting to see a continued increase in the cost."
An electric arc furnace steel mill consumes 40 megawatts to 200 megawatts of electricity daily, with usage fluctuating based on production flow. Steelmakers say passing along higher power costs to customers will be difficult when supply contracts are pegged to market prices for steel. "In the steel industry, our margins are so thin we can't pass along two-times or three-times higher manufacturing costs," Brandon Farris, vice president for the Steel Manufacturers Association, said.
Industry Pushes for Emergency Policy Response
The steel association is urging Congress and the Trump administration to delay retirements of older power-generating plants and streamline permitting for new projects, which is now averaging 4.5 years. "We need every kilowatt and every megawatt we can get," Farris said. New plants aren't adequately replacing the electricity lost when older generating stations close, the group said.
This article is for informational purposes only and does not constitute investment advice.
