Steelmakers eye data centers on idle factory land amid industry downturn

South Korean steelmakers are considering developing data centers on unused factory sites, capitalizing on existing power infrastructure to address declining steel demand and overcapacity. Companies like KG Steel are exploring AI data center construction on idle land at their Incheon plant as a mid-to-long-term project. Dongkuk Steel Group is also collaborating with AI infrastructure firm Elice Group to explore integrating cloud technology and GPU-based operations at steelworks sites, with potential locations in Incheon and Dangjin.

Hyundai Steel is in discussions with its labor union regarding the utilization of land from its closed 90-ton electric furnace and small rebar rolling mill in Incheon, with AI data centers being one of the possibilities. The appeal of these sites lies in the substantial power substations already in place for operating large equipment like electric furnaces and rolling mills. After facility closures or production cuts, these existing power facilities offer potential for repurposing.

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Actual business development requires careful consideration of power supply stability and licensing risks, as well as securing professional operators and long-term clients, recouping large investment costs, and regional demand.

However, transforming these sites into data centers is not straightforward. A steel company official noted that actual business development requires careful consideration of power supply stability, licensing risks, securing professional operators and long-term clients, recouping large investments, and regional demand. The process is lengthy, as seen in Japan, where JFE Holdings began exploring a data center project on idle land at its Keihin district steelworks in March 2023 and only recently outlined specifics like capacity and a target operation year of fiscal 2031.

The potential of data center ventures to offset the struggles in the core steel business remains uncertain. A credit rating agency representative commented that these efforts are likely aimed at improving asset efficiency in difficult times rather than providing a breakthrough solution to industry challenges like overcapacity and trade barriers. The domestic steel industry faces a double blow from reduced demand for construction steel due to a sluggish construction market and global oversupply. Domestic rebar sales from January to April decreased by 7.1% year-on-year, while the OECD forecasts global steel production capacity to expand significantly more than demand through 2028.

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It can be seen as an effort to find a supplementary breakthrough in difficult situations, rather than a business that can overcome factors worsening the industry outlook, such as Chinese steel products and tariffs from various countries.