LONDON, May 22 (Reuters) - It's forty-five years since

anyone built a primary aluminium smelter in the United States.

When Alumax fired up the Mt Holly plant in South Carolina in

1980, the country's tally of smelters rose to 33 with combined

annual capacity of almost five million metric tons of aluminium.

Today that number has shrunk to six. Two are fully

curtailed. Two, including Mt Holly, are running below capacity.

Annual production has shrunk to 700,000 tons.

Emirates Global Aluminium hopes to reverse the tide with a

new plant in Oklahoma. It joins Century Aluminum ( CENX ), which

was awarded federal funding by the Joe Biden administration for

a new "green" low-carbon smelter somewhere in the

Ohio/Mississippi River Basins.

Both projects face the same dilemma. High power prices

killed off most of the country's smelters and a lack of

competitively priced power has deterred anyone from building one

since the last century.

It doesn't help that any smelter project must compete for

electricity with tech companies willing to pay almost anything

for their power-hungry data centres.

NO POWER, NO METAL

Aluminium compounds have been around since ancient times,

used by the Egyptians as a dye-fixer and the Persians for

pottery.

But it wasn't until the early 19th century that anyone

worked out how to refine bauxite into metal and even then it

remained something of an expensive curiosity. Global production

was just two tons in 1869 and aluminium was more valuable than

gold.

The solution, discovered independently by Charles Martin

Hall in the United States and Paul Héroult in France, was to use

electrolysis on an intermediate product called alumina.

The Hall-Héroult process is still the dominant technology in

producing a metal that is now ubiquitous in buildings, vehicles

and consumer packaging. And it needs a lot of uninterrupted

power.

It takes 14,821 kilowatt-hours of electricity to make a ton

of aluminium, according to the U.S. Aluminum Association. A

modern-size smelter with annual capacity of 750,000 tons needs

more power than a city the size of Boston.

That's a big challenge for any primary aluminium producer in

the United States given the Energy Information Administration

estimates that the country will be facing an energy deficit of

31 million megawatt-hours by 2030 and 48 million by 2035.

ALUMINIUM VERSUS AI

The power is available right now to build a new U.S.

aluminium smelter, according to Matt Aboud, Senior Vice

President of Strategy & Business Development at Century

Aluminum ( CENX ).

The problem, he explained at last week's CRU Aluminium

Conference in London, is that it isn't available at a fixed

long-term price, which is what a smelter needs to lock in its

profitability and pay back construction costs that will run into

the billions of dollars.

The Aluminum Association estimates that a new U.S. smelter

would need a minimum 20-year power contract at a price of not

more than $40 per MWh to be viable at current aluminium prices.

Any smelter project is in a race with Big Tech, which is on

the same hunt for energy to power its next-generation artificial

intelligence data centres.

And tech companies "have no limit on what they are prepared

to pay for dependable 24/7 electricity", according to the

Aluminum Association's just-released report on rebuilding U.S.

supply chain resilience.

The Association estimates Microsoft ( MSFT ) conceded $115

per MWh in its deal with Constellation Energy ( CEG ) to restart

the Three Mile Island nuclear plant in Pennsylvania.

Even reactivating moth-balled aluminium lines will be

challenging given the 2023 price of power averaged $73.42 per

MWh in the four U.S. states hosting smelters with idle capacity,

it warned.

'WHERE THE WIND COMES SWEEPING DOWN THE PLAIN'

EGA hasn't yet signed a power deal for its proposed

600,000-ton-per-year smelter in Oklahoma. Final go-ahead is

contingent on an agreed "power solution framework based on a

special rate offer from the Public Service Company of Oklahoma,"

according to the Memorandum of Understanding signed by state

governor Kevin Stitt.

Oklahoma has the advantage of producing almost three times

more energy than it consumes, according to the EIA.

Around half of the state's electricity generation was

sourced from natural gas in 2023, with wind power accounting for

another 42%. Indeed, Oklahoma is the third largest wind power

state after Texas and Iowa.

Harnessing intermittent wind power to run an aluminium

smelter, however, would take a massive amount of grid storage

capacity, meaning there would likely have to be some gas in the

energy mix for any new smelter.

That's better than coal but not ideal in an industry which

is collectively trying to lower its carbon footprint to produce

"green" aluminium.

DON'T CHUCK IT!

Even assuming EGA can get a viable long-term power deal, the

$4 billion project will only pour its first hot metal some time

near the end of the decade.

By which time, 14 new re-melt facilities will have started

up, lifting U.S. demand for recyclable scrap aluminium to 6.5

million tons, according to the Aluminum Association's

projections.

Recycling requires much less power, typically around 5% of

that required to produce virgin metal, and comes at a much lower

capital cost.

The main constraint on U.S. secondary production growth is a

shortage of "scrap".

The country has an astonishingly low beverage can recycling

rate of just 43% and throws away the equivalent of 800,000 tons

of aluminium every year.

It also exports huge amounts of end-of-life aluminium scrap.

Exports rose by 17% year-on-year to 2.4 million tons in 2024,

much of it destined for China, which is increasingly hungry for

recyclable raw material.

Capturing more recyclable material at home and sending less

of it abroad would be a complementary strategy for reducing

import dependency of a metal classified as critical by every

U.S. government agency.

It's also likely to be faster and cheaper than waiting to

see if either EGA or Century can win the battle with Big Tech

for enough power to build a new primary smelter.

The opinions expressed here are those of the author, a

columnist for Reuters.

(Editing by Mark Potter)