Articles
South Texas manufacturers navigate a data center bubble
By Bart Taylor, GHMA
Houston manufacturers are wise to cyclical markets, to boom and bust. They know a bubble when they see it.
It’s why those participating in the data center buildout in South Texas are ramping up operations to meet demand, with eyes wide open. As one fabricator told me, “I’m treating my next (data center) order like it’s my last.”
Wise counsel.
Our goal is to assess the scope and duration of the buildout. We’re efforting to shed light on data center supply-chain details and present more information at GHMA’s Mid-Year Manufacturing & Economic Forecast June 17. You’re invited. Along the way, it’s also important to make sense of fast-moving details.
Texans are getting mixed messages relating to moratoriums on data center development. There’s certainly grass-roots support building to slow down the data center boom – and the orders that come with it. For example, “Hill County became the first in Texas to approve a one-year moratorium on new data center and power plant construction in unincorporated areas,” and others like Hood and Hayes counties “are petitioning” for similar pauses.
More, Texas Department of Agriculture Commissioner Sid Miller used his office last week to call for a “temporary moratorium on new hyperscale data center development in Texas until we fully assess the long-term impacts on our infrastructure, agricultural economy, and communities.” Hill’s concerns are understandable. As AG Commissioner, he’s charged with protecting those assets that weigh on the success of Texas agriculture, namely water and land. Hill cited a Georgia example where outrage followed a report that “a data center reportedly used nearly 30 million gallons of water during drought.”
In South Texas, water is already a massive issue and in some cases a barrier to responsible development. Ask the folks in Conroe, or Corpus Christi.
Yet no formal response has yet been forthcoming from Governor Greg Abbott, Hill’s elected counterpart, nor is it clear that Texas’ US congressional delegation favors intervention. More the opposite, based on past pronouncements. We asked; no word yet.
If water is one potential show-stopper, energy is another, and rising demands on the grid may in the end be the challenge to development that even pro-growth advocates can’t abide.
Use AI to do your own research (ironic, isn’t it?), but know that Texas is a key national hub. In Greater San Antonio alone, over 70 operational facilities dot the landscape in addition to a “new wave of underway and planned developments vastly larger in scale.”
In Houston, AI tells me there are upwards of 35 “operational” data center powering “specialized high-performance computing (HPC) needs of the oil, gas, and healthcare sectors” and many more planned to undergird the “broader enterprise, cloud, and AI infrastructure” that will soon power my search for information on data center development.
The sticky wicket is of course energy, the exponential increase in power that data center processing requires, on a grid already prone to volatility. The optimistic view is that CenterPoint Energy and the ERCOT grid can successfully scale transmission infrastructure to meet demand for gigawatts of new power, as Retail Electric Providers like GHMA member-companies TXU and Chariot Energy keep rates at reasonable levels for consumers and businesses.
The glass-half-full narrative also includes new, alternative power sources coming online to augment both regional and national grids – including renewed enthusiasm for nuclear power. One of my national counterparts, Stephen Gold, president of the Manufacturing Alliance, sees nukes as a panacea in Making the Case for Data Centers, asserting that “small modular reactors (SMRs) are easier and faster to build, are independent of the power grid and can be installed directly on-site at data center campuses.”
I asked a real person about Gold’s optimism – ARC Specialities’ Dan Allford, himself a nuclear advocate and one of Houston’s top manufacturers. Allford was succinct. “SMRs making useful power are eight years out,” he replied to me. “The only SMR under construction will simply heat water, not generate power. And there are no traditional light water nuclear reactors under construction now.”
It’s clear we’ll reach an inflection point much sooner. That’s not to say that nukes aren’t part of a long-term solution. Of course they are. “I expect that permits will be granted for several traditional large nuclear reactors in the next few years. Add four years of construction time to this, and we're at least six years out for traditional nuclear power as well,” he forecasts, and that “only a couple of mothballed nuke plants have any realistic hope of restarting.”
Allford adds that “solar and wind are quick to deploy and will be the largest addition to our grid capacity.” They will, when Texas fully commits.
We’ll leave policy matters to entities like the Texas Association of Manufacturers, though it would seem a full-throttle, pro-growth position on data center development might be yesterday’s endorsement.
Just ask a Houston manufacturer.
Bart Taylor is president of the Greater Houston Manufacturers Association. Reach him at [email protected].
REGISTER for the GHMA Mid-Year Manufacturing & Economic Forecast and join us for an informative discussion over lunch.
How shifting demand, supply constraints, and a new tariff regime keep Houston steel buyers guessing
By Bart Taylor, GHMA
Managing commodity prices has become a full-time job for US manufacturers, from plastics to carbide as we’ve detailed.
I reached out to Sam Stein at Houston stalwart Triple-S Steel to make sense of the current and future state of steel pricing, manufacturing’s nameplate commodity.
Like many South Texas industrial stories, the arc of Triple-S spans generations. “My great grandfather had a scrapyard and my grandfather started the steel company by going through his father's scrapyard and finding the steel that was good enough to resell,” Stein recounts. “My father took over in the eighties and he's been the CEO ever since. We've grown from a little retail steel company to one of the largest wide-flange beam distributors in the country, with approximately 60 locations, including South America.” Stein “wears many hats” in the business and identifies today as the Product Manager for plate products for the company’s Texas divisions.
Today, steel prices are high. Shifting demand, supply constraints, and tariffs are making for a volatile mix. ForecastEconomics reported that “In April, prices extended their gains for a seventh straight month. U.S. mills are pushing through price increases driven by higher input costs caused by the U.S.-Iran conflict. Higher prices for iron ore, a key steelmaking feedstock, also lent support.”
FE might have added that U.S. mills are also being opportunistic, a fact Stein acknowledges. “That's the world we live in. If you're not taking advantage of an upswing in the market or supply side tightness to raise your prices, you're not doing your job.”
I asked Stein to assess the impact of tariffs. “In 2018, when the (Section) 232 tariffs first appeared, steel was unfairly traded,” Stein said. “Some countries, some products, were worse than others. The short-term impact was a spike in prices. But within a year, prices had leveled off and imports had come back into the market because the U.S. price had gotten so high that foreign producers could effectively eat the tariff and still be competitive.
“Then 2020 happened (COVID) and supply chains all over the world collapsed, and the low pricing environment of 2020 kept a lot of foreign steel out of the US. There was no economic activity, but steel is an essential industry, so the steel mills never shut down, the service centers like us never shut down, the fabricators never shut down,” Stein recounts. “The steel mills had short lead times because their order books weren't full. And steel was cheap enough that we were able to buy whatever we wanted at a good enough price domestically.”
As demand rebounded, so did the price of steel. “Demand exploded in early ‘21 – and steel prices climbed dramatically all through ‘21 and stayed elevated through most of ‘22. And we bought a lot of foreign steel. We bought a lot of domestic steel in those years as well, but we bought a lot of foreign because we couldn't buy everything we needed; mills could not fill every order they took,” Stein said.
“Things leveled off a bit in ‘22, and then prices again came back down to earth, coinciding with the cool-off in the construction of distribution centers. I can't say that's the only thing that drove steel prices down, but it was an inflection point. When Amazon canceled multiple distribution centers in one day, it was a big signal to a lot of us that in non-residential construction markets, things were cooling off,” he said.
Cue the next cycle. “Things started to pick up again in ‘24 then after the election in ‘25, things started to heat up even more,” he said. Supply constraints also began weighing on prices. “Between mill outages and some bigger end-user jobs – line pipe, for example, which can be thousands of tons – that's been eating capacity this year. And then there’s the data center work. Selling steel for data centers last year was certainly a lot of fun,” he laughs.
Have tariffs crashed the party for Stein and his customers? “They’re the world we live in today, and whether you’re a manufacturer or fabricator who has to adjust estimates or internal budgets to deal with higher cost materials, or you're a service center like me who suddenly has fewer vendors available, it's all part what we deal with every day,” he said. “And tariffs aren’t the only reason prices are elevated right now.”
Stein says his customers have also adjusted as the tariff model has evolved. In prior rules, tariffs applied only to the value of unfabricated steel within the finished good. Today, tariffs now apply to the total value of the steel-containing good.
“Let's say you're a manufacturer in Mexico. You've got a $100 worth of steel in some widget, and you fabricate-up that widget. The value of what you paid for the steel is $100, but given the value of labor and marketing and all that, you sell this item for $500. Originally, you only paid a tariff on the $100 worth of steel. Now, within the last month, that's changed, so that now the tariff applies to the total value of the steel containing good,” Stein explains.
And depending on the country of origin, tariffs differ. “If you're a manufacturer in Mexico and buy $100 worth of steel from a US producer and re-export it back to the US, it's 10 percent if it's American steel,” Stein said. “Let's say you bought $100 worth of steel from Korea, that $500 widget gets tariffed at 50 percent.”
Which adds a considerable burden to offshore producers.
But the challenge for thousands of US companies is that we’ve come to rely on offshore producers for the imported widgets sold in whole or as components for OEMs. It’s not always an Us-vs.-Them scenario. It’s often Us-vs.-Us.
Looking Forward: Growth Industries
I ask Stein to forecast the next 12 to 18 months in Houston manufacturing. “I don’t think data centers are going anywhere in the next 12 months,” he replied.
“Oil and gas is a total crapshoot based on what happens in Iran and the Strait of Hormuz. Right now, we've seen a lot of oil and gas projects get put on hold because no one knows what the price of oil will be tomorrow. A lot of projects get put on hold when there's just that much uncertainty.
“Marine construction, particularly barge and boat building, is having a strong year so far. And for the most part, I see that continuing at least through the end of the calendar year,” Stein said. I mention the Davie maritime investment in the Gulf. “Yes, that's one we're paying close attention to.”
Stein also has eyes on the significant electronic ecosystem in Greater Houston. Foxconn’s major facility expansion has been an eye-opener, for one. I also mention SpaceX and the growing aerospace opportunity. “That’s an area we see as a real growth sector. Not just SpaceX, but everyone who wants to be a part of that industry, everybody who wants to sell something to SpaceX.
“I think the new space race is going to be a big part of the story of the steel industry,” he said.
As for a forecast on steel prices? “Over the next 12 months, I think they will probably continue to rise, but not quite as aggressively as they have at the start of the year. My gut says we're pretty close to the peak. But you know, I've been wrong before,” he laughs.
And perhaps slightly confused. I asked Stein to help me understand why, in light of healthy demand and high prices, tariffs were needed to protect the domestic steel industry, not to mention the push from 25 to 50 percent for offshore providers. “I admit I didn’t see that one coming,” he said, and added, “the application or removal of tariffs isn’t perfectly correlated with what’s actually happening in the market. Tariffs seem to be more about protecting the industry existentially.”
A worthy goal, even if today it may be a solution in search of a problem.
Bart Taylor is president of the Greater Houston Manufacturers Association. Reach him at [email protected].
Triple-S Steel is a GHMA member company. Reach Sam at [email protected].
