Iceland’s steel market: complete outsourcing

Demand for steel in Iceland is met entirely by imports. Not only is there no domestic production of steel or rolled products, but there is also no steelworking on an industrial scale. This situation is due to local circumstances.

Market profile

The average salary in Iceland is €6,350 before tax, one of the highest in the world. It is not cost-effective to pay an employee such a sum for local welding of a warehouse frame. In Lithuania, Poland and even Denmark, similar steelwork costs a fraction of the price. At the same time, shipping a tonne of basic rolled steel (such as hot-rolled sheet or wire rod) and finished steel structures (SS) to the island costs roughly the same.

Finally, there is no significant demand. There is no point in building a large service steel centre (SSC) for a market that consumes €60 million worth of base steel products per year. Local mini-SSCs serve a stable but small volume of ongoing orders for the fishing industry and infrastructure.

Due to the modest scale, it is unprofitable to invest in expensive, high-performance equipment here. Consequently, the country cannot compete with European players in the implementation of large-scale projects.

When construction of a large hotel or data centre begins in Iceland, contractors prefer to import ready-made steel structures from Poland or Lithuania, leaving Icelandic sites to handle express repairs.

Over the past five years, the country has almost entirely switched to purchasing European turnkey construction kits. In 2021, imports of construction kits in monetary terms exceeded imports of base steel by 1.9 times. By 2025, the ratio had risen to 3.7 times

The geography of supplies shows that the Icelandic market is almost entirely controlled by European players. The top five supplier countries accounted for 71.3% of steel imports under Group 73 in 2025.

• Germany meets the demand for seamless steel pipes (required for the modernisation of port and geothermal infrastructure), stainless steel flat products for fish processing, and heavy construction sections.
• Norway is the main supplier of structural steel for the fishing industry, heavy bridge and frame structures for the road sector, and avalanche barriers.
• Lithuania mainly supplies basic construction structures, reinforcing bars, shaped sections and galvanised sheet for roofing and sandwich panels.
• Denmark meets the demand for stainless steel tanks for the fishing industry, as well as commercial sheet steel (including cutting to size and finishing).
• The Netherlands is the main source of supply for galvanised sheets, steel fasteners, wire and other steel products.

The remaining 28.7% of imports are divided between China (which is attempting to enter the fasteners and general-purpose pipes segment), Sweden (speciality steels) and the United Kingdom.

Steel consumption in the construction sector

Iceland’s construction industry drives demand for reinforcing bars, galvanised sheet steel, profiled sheet steel, prefabricated sandwich panels, lightweight thin-walled structures and modular steel units. As traditional monolithic concrete requires significant manual labour (which is expensive on the island), developers have switched en masse to imported steel modules and steel frames. Prefabricated houses made from European steel modules form the basis of residential construction in Iceland.

Interesting fact. The increase in the base rate of the Central Bank of Iceland (Seðlabanki Íslands) from 0.75% in 2021 to 9.25% in 2024 led to a certain cooling of the residential construction market. This is evident from the number of building permits issued. However, steel traders did not observe a downturn due to the significant number of projects already underway. In 2023, a historic high was reached in terms of the number of homes completed and the floor area. This was followed by a slight decline, but figures remained higher than pre-crisis levels.

Statistics for the industrial sector paint a similar picture. Following a record-breaking 2022, when the construction of large logistics facilities near Keflavík Airport (the K64 project) was completed, the market contracted in 2023. However, a recovery process began immediately thereafter, and volumes exceeded pre-crisis levels.

The main driver was the expansion of data centres (DCs). In 2021, there were 5 of them; as of 2026, there are now 6. The quantitative growth is minimal, but the total power consumption has risen from 70 MW to 200 MW, i.e. almost threefold.

Every new megawatt of data centre capacity means high-strength steel frames, server racks, as well as kilometres of cable trays and hundreds of square metres of galvanised sheet steel air ducts for natural convection cooling systems.

The real blow to the sector came from the rise in the cost of imported steel, caused by the European energy crisis. Any fluctuation in rolled steel prices in Northern Europe and the Baltic states directly affects the cost of Icelandic construction projects.

Local developers are unable to hedge risks through domestic supply. Hence the decline in the share of construction in GDP by more than 1% over five years. For a developed European economy, this is a very significant figure.

Steel consumption in industry

The second most significant sector in terms of demand for finished steel. This was driven by all three aluminium industry enterprises located on the island.

• Norðurál Grundartangi, the largest player with an annual capacity of 375,000 tonnes, is owned by the American corporation Century Aluminum. Between 2021 and 2024, a new automated casting shop was built and commissioned here to produce the branded low-carbon billet Natur-Al™ for the European automotive industry, with a capacity of 150,000 tonnes per year.

As part of the €100 million project, support frame structures were procured for new mixers and holding furnaces. The structures were manufactured from thick-gauge heat-resistant rolled steel and special high-stiffness beams. To service the new casting lines, kilometres of process walkways were constructed using shaped rolled steel and steel decking.

The new types of ingots required a different logistics system within the plants. The old warehouses were unable to cope with the storage of long products. Automated high-bay racking systems were built. Ready-made precision steel structures with high geometric accuracy were used, capable of withstanding the weight of multi-tonne stacks of billets.

• The Alcoa Fjarðaál plant, the most modern on the island with a capacity of 346,000 tonnes per year, is owned by the American corporation Alcoa. Between 2021 and 2025, the plant underwent a major refurbishment to meet ASI V3 standards. The main works involved the automation of gas cleaning systems, the modernisation of the anode shop, and the reorganisation of logistics within the casting yard to reduce the carbon footprint.

As part of the €117 million project, new bag filters, scrubbers, and silo towers for alumina distribution were constructed. These are enormous thin-walled steel structures. They were assembled in Europe from galvanised and stainless steel and delivered as ready-made process modules. At the same time, hundreds of metres of gas ducts made of steel pipes with a diameter of 1–3 m were laid to transport process gases from the electrolysers to the treatment plants.

• The ISAL Straumsvík plant, the oldest facility with a capacity of 210,000 tonnes per year, is owned by the Australian corporation Rio Tinto. Between 2022 and 2025, a large-scale replacement of electrolysis cells with more energy-efficient ones was carried out here, the crane system was upgraded, and a digital smelting control system was introduced to reduce direct CO2 emissions.

Thousands of tonnes of structural sheet steel, 20–40 mm thick, were required to manufacture the electrolysis cell housings. Steel was also used for galvanising (heavy-duty steel conductors and cathode casings) and new anode holders. The project cost €83 million. The service life of a cell is 5–7 years, so such work is carried out regularly at all three plants, creating stable demand for steel.

Outlook for steel demand

Based on forecasts by Seðlabanki Íslands for a 4.2% increase in fixed capital investment in 2026 and the current order book index from the Federation of Icelandic Industry (Samtök iðnaðarins), steel consumption is expected to rise by 6% to €301 million.

Sales of flat steel in Group 72 will rise by 7% to €64 million. The main driver is increased construction activity in Reykjavík and Keflavík. Foundations for new residential complexes and commercial buildings are currently being laid there. Contractors will need more reinforcing bars and shaped steel for these stages of the work.

Imports of fabricated steel structures under Group 73 will rise by 5.6% to €237 million. Aluminium giants have temporarily exhausted their expansion potential; their Icelandic investments in 2026 are focused on maintaining operational efficiency. This means there is no strong demand for steel from them.

The data centre industry is facing a shortage of available electricity (e/e). The state-owned energy company Landsvirkjun is currently extremely reluctant to issue new power limits for connections. This is holding back existing expansion projects and new construction. In 2026, very modest growth in data centre capacity is expected – by 15–20 MW. This is mainly due to atNorth, which announced the development of its ICE02 campus in Keflavík in May.

The main driver of steel demand in 2026 is the construction of Iceland’s first industrial wind farm, Búrfellslundur, with a capacity of 120 MW. This facility is intended to partially offset the capacity shortage that is holding back the emergence of new data centres.

Landsvirkjun is overseeing the construction, and the contract to supply the equipment was awarded to the German manufacturer Enercon. The first deliveries of turbine components to the island began in the spring and summer of 2026. The first phase is expected to be commissioned this autumn. The wind farm will reach full capacity by the end of 2027.

The launch of the project marks a breakthrough in the wind energy sector for Iceland. For a long time, its development had been held back by environmental concerns. Growing demand for electricity from data centres has forced the government to reconsider its position. The IT industry not only generates steel sales itself but also acts as a driver for the development of wind energy, which is also a major consumer of finished steel.

In the near future, the IT industry will remain the main driver of demand for steel in Iceland thanks to its unique climatic conditions. In a typical data centre in Frankfurt or Paris, around 40% of all electricity is spent not on running processors, but on cooling them. In Iceland, where the average annual temperature is +5°C, cooling is virtually free.

For large IT corporations specialising in artificial intelligence, this translates to savings of nearly 70% on computing costs per 1 MW. Hence the boom in global demand for data centre hosting in Iceland.

This creates the conditions for growth in sales of galvanised sheet steel for air ducts, steel ventilation elements for facades (louvers), cable trays and internal framework equipment made from sheet steel and profiles.

To remove this bottleneck, the government has approved the largest investment programme for Landsvirkjun. In 2026, its capital expenditure will amount to €235 million, in 2027 – €269 million, and in 2028 – €330 million.

In addition to the construction of the Búrfellslundur wind farm, funds will be directed towards expanding existing hydroelectric power stations (increasing reservoir capacity) and drilling new deep wells to boost the capacity of the active geothermal power stations at Krafla and Reykjanes.