The Alumina Chronicles:
The Broad-Based Aluminum Tariff Imposed By The USA
September/October of 2018
Mr. Michael Bless, Chief Executive Officer of Century Aluminum Company; United States
Secretary of Commerce Wilbur Ross; Kentucky Governor Matt Bevin; and Mr. Dusty Stevens,
a worker at Century Aluminum, at the ceremonially re-start of the aluminum smelter of
Century Aluminum Company at Hawesville, Kentucky, on August 22, 2018.
The broad-based tariff on aluminum imports into the United States of America, implemented by executive order of President Donald J. Trump, may eventually have long-term impact on the aluminum market. Today, that is uncertain.
What is clear is that this broad-based aluminum tariff, along with an additional broad-based tariff on steel, is having a short-term impact on the aluminum market.
Prices have increased for many purchasers of aluminum in the United States. Some end-users of products made of aluminum are also seeing price increases.
And, as most industry leaders are quite aware of, these broad-based American tariffs on aluminum and steel have initiated a wide-ranging trade war that now affects products as diverse as agricultural feedstocks to motorcycles and from fabrics to appliances.
The broad-based aluminum tariff may result in a few businesses being able to increase their profit margins and/or increase their sales in the short-term. Or, the tariff may change market conditions by encouraging the establishment of aluminum import quotes for major suppliers of the metal into the United States.
Aluminum is a critical element in the American economy.
Bauxite, the most common ore of aluminum, is the official state rock of Arkansa
Tariffs implemented by executive order in the United States have generally been limited in duration. In many cases, the tariffs allow market leaders within the United States to stabilize their market shares rather than increase their market shares long-term.
To fully change the market for aluminum production within the United States alone would require substantial capital investments in new aluminum smelters, likely public policy decisions to subsidize the cost of electricity to the existing and new aluminum smelters, the recruitment and training of workers willing to do manufacturing work within the aluminum industry, and long-term contracts from customers that guarantee purchases from existing and new aluminum smelters.
More likely would be a firm policy decision that the aluminum industry within the United States is actually a consolidated industry within the United States and Canada or the United States, Canada, and Mexico. With either both countries or all three countries combined together, decisions on capital investments, costs of electricity, worker recruitment and training, and long-term purchase contracts would be different from decisions made based on a market composed of the United States alone.
Beyond Canada and Mexico, the United States would also need to determine if the nation will choose to include or wall off through tariffs other countries that produce aluminum.
Until these policy decisions are made by the United States government, it is unlikely that most decisions on capital investments, costs of electricity, worker recruitment and training, and long-term purchase contracts will be made by industry leaders.
The main goal of both the broad-based aluminum tariff and the associated broad-based steel tariff was to “secure sufficient domestic production capacity of these vital metals for defense – for planes and tanks and for critical infrastructure,” according to Mr. Leo Gerard, International President of the United Steelworkers. This union includes tens of thousands of workers in the aluminum industry.
When the broad-based aluminum tariff went into effect on March 23, 2018, several nations were exempted from this tariff. Among those initially exempted were America’s trading partners through the North America Free Trade Agreement – Canada and Mexico – as well as Argentina, Australia, Brazil, the European Union, and South Korea.
The exemptions for Argentina, Australia, Brazil, and South Korea have since been made permanent.
The broad-based aluminum tariff became effective on imports from Canada, the European Union, and Mexico as of May 31, 2018.
While the United Steelworkers – and many others - support the broad-based aluminum tariff, this union has explicitly stated that Canada should be excluded from any tariffs. The union – and many others in a variety of industries – has cited the deep integration between the business supply chains in Canada and the United States.
Beyond economic reasons, others have cited the military relationship between the two nations as reason to allow tariff-free trade between Canada and the United States.
The militaries of both countries are coordinated together in ways unseen between most other nations. Both countries share the longest unprotected border between any nations in the world. Quite literally, the United States and Canada cooperate and share military resources to such an extent that joint defense of both countries has been the operational policy of Canadian and American political and military leaders for decades.
While the stated goal of the broad-based tariff on aluminum involves military preparedness, the reality is that this tariff is impacting much more than domestic production capacity of aluminum for the armed forces.
In the short-term, many industry leaders will simply ride the wave of the market. Some will prosper. Some will see costs increase.
Almost all will remember the actions of those with new-found market power. If that power is utilized in ways that are perceived to help the military supply chain within the United States – the key goal of the aluminum tariff – many will accept that market leaders responded to a request to help the United States.
If, however, that power is utilized in ways that are perceived as harmful to one’s business, those business leaders will be unlikely to forget who caused that pain.
Short-term, purchasers of aluminum may feel forced to purchase from specific aluminum suppliers.
Long-term, those same purchasers of aluminum may decide to make very different decisions based on the actions of those with the new-found market power.
As noted, those long-term impacts are uncertain at this time.
To understand the short-term impact of the broad-based tariff on aluminum, we looked at three locales, including Russia, China, and Canada.
As in Russia, Ohio; China, Maine; and Canada, Kansas.
These American communities bear the names of three of the countries affected by the aluminum tariffs.
Wheatbelt, Inc. is located a few miles west of Canada. Canada, Kansas.
Canada, Kansas, is a small, rural community at a crossroads between the cities of Hillsboro and Marion in the Flint Hills. About a mile north is Marion Lake, a reservoir that provides flood control to area communities and recreational opportunities for both local folks and visitors.
A few miles west of Canada is the headquarters and factory for Wheatbelt, Inc. This business manufactures a variety of rolling shutters using aluminum. In operation since 1981, the company builds window shutters as well as shutters for doors, skylights, kiosks, serving windows, and screen porches, among other uses.
“A company’s profit is that last dollar and whatever is lost in sales drops any profit,” stated Mr. Roger Hofer, President of Wheatbelt. “Now we have a 10% tariff for our sales to a big, old customer in Canada [the country]. I’m thinking he will go to a Canadian producer of rolling shutters.”
Mr. Hofer concludes, “We put a tariff on Canadian aluminum, and they put on a tariff on it when we send it back. Nuts!!”
Russia, Ohio, is a village located in western Ohio. Approximately 650 people live in this community. One school building houses all public school children in grades K through 12. A branch library of the Shelby County Libraries is also located in the village. Several manufacturers are located in Russia.
Superior Aluminum Products is one of those manufacturers. The business has been directly impacted by the broad-based aluminum tariff, according to Mr. Doug Borchers, President of Superior Aluminum Products.
“The tariff actually impacted Superior Aluminum long before the effective date…During the month of April, the price of aluminum on the open market went from less than 90 cents per pound up to $1.14, a cost increase of over 25 percent even before the 10 percent tariff went into place in June,” stated Mr. Borchers. “Thankfully, a fair amount of our aluminum was purchased on future contracts, where our pricing was locked in for six months, so we have minimized the 35 percent price increase somewhat, but, nevertheless, I’d estimate our costs have gone up at least 15 percent. It also caused short-term worries about supply.”
Superior Aluminum Products is located in Russia. Russia, Ohio.
Mr. Borchers noted the low production capacity to meet the demands for aluminum within the borders of the United States. “If every aluminum smelter in the entire United States were running at 100 percent efficiency, 24/7, we could still only supply 30 percent of the raw aluminum that is needed in the country. We simply don’t have the infrastructure here to make the aluminum we need, and to change that requires three to five-year projects to build new plants, assuming they could get the raw materials here to make it in the first place!”
He stated that the broad-based aluminum tariff is hurting many within the United States. “… To put a penalizing tariff on aluminum coming into the United States mostly hurts our own economy. Especially when the effects of retaliatory measures affect other American industries, which has already started. It won’t change the proportion of aluminum imported versus made here, because we’re already consuming all we can make in the United States. Prices for items like cars, buildings … appliances, equipment, and even beer will all be artificially inflated while this tariff is in place.”
“My hope is that this is a short-term escalation or disruption. I hope things stabilize soon,” stated Mr. Borchers.
“It is very clear to us in the aluminum industry that the answer is not tariffs if we want to be more self-sufficient in the United States,” concluded Mr. Borchers. “It should be tax incentives to bring new aluminum smelter facilities on board. We are attacking the problem from the wrong end.”
China is a rural community in the central part of Maine.
China, Maine, is located in the central part of the state. While this region is dotted with small towns and rural communities, its economic well-being is tied into the overall global economy.
The largest trading partner for Maine is Canada. Nordic countries, Ireland, and the United Kingdom are also major trading partners with the state. In addition, countries in eastern Asia are also active in trade with Maine, especially in the area of seafood.
“While overall job growth in Maine has been approximately 3% from 2009 to 2017, jobs related to trade grew almost 26% (25.9%) during the same time period,” explained Mr. Garvan Donegan, Director of Planning and Economic Development at the Central Maine Growth Council. “Approximately, 1 in 4 jobs in Maine are now related to the global economy.”
The Central Maine Growth Council is a regional economic development non-profit organization that directly helps four local municipalities (Fairfield, Oakland, Waterville, and Winslow) as well as the central region of the state. In addition, this organization is active with others in statewide initiatives to generate economic growth.
One of the tools utilized to enhance economic growth is available through the local Foreign-Trade Zone.
“Our job is to help businesses,” stated Mr. Donegan. “In anticipation of the impact of the tariffs, we’re looking at ways we can utilize incentives through the programs of the Foreign-Trade Zone as one of the ways to blunt the impact of tariffs.”
“Our talks with local businesses affected by the tariffs are also facilitating broader discussions,” continued Mr. Donegan, “on re-thinking the logistics and supply chains for these businesses.”
A view of sunset in China, Maine.
Beyond tools available through the programs of the Foreign-Trade Zone, businesses affected by the broad-based aluminum tariff also have the option to ask for an exclusion from the tariff.
As noted by the United States Commerce Department, “A separate Exclusion Request must be submitted on each distinct type and dimension of aluminum product to be imported.” In other words, a business manufacturing cans cannot simply ask for an exclusion from the broad-based aluminum tariff for all cans. Instead, the manufacturer must file separate exclusion requests for every specific type (size, dimension, and other differentiations) of aluminum can it produces.
Among those that can request an exclusion are manufacturers of aluminum. ALCOA, for example, has filed several exclusion requests.
While a business can ask for an exclusion from the broad-based aluminum tariff, manufacturers of aluminum products in the United States are able to object to that exclusion request. Century Aluminum, for example, has filed several objections to exclusion requests.
Of course, the impact of the broad-based aluminum tariff is not limited to Canada, Kansas; Russia, Ohio; and China, Maine.
The impact of this tariff has also been felt – to varying degrees – by some of the largest users of aluminum in business products and by a number of the largest industries that utilize aluminum in production.
The aviation industry is one of the largest users of aluminum. Airbus, one of the two largest airplane manufacturers, directly employs approximately 2,000 people in the United States. Thousands of additional workers in aerospace supplier companies derive employment from purchases of products by Airbus from those suppliers.
“Airbus has no comment on diplomatic matters or bilateral trade disputes. However, we believe that global commerce is facilitated by reducing barriers to trade, and that there are no winners in trade wars. With regard to the impact [of the broad-based aluminum tariff] on Airbus, that is still being analyzed…This is, in any event, an industry-wide issue and not unique to Airbus.”
The automotive industry is also one the largest users of aluminum. General Motors (GM), one of the largest automotive manufacturers, is also reviewing the impact of the aluminum tariff:
“At GM we are still assessing the full impact of the recent and proposed trade and tariff actions. There’s no question we’ve experienced headwinds from rising prices on steel and aluminum that are largely a reaction to recent changes in trade policy. We have long supported policies that promote a level playing field for trade around the world. Ultimately we would hope that would be with no tariff or non-tariff barriers between key trading partners. The global automotive supply chain is very complex and integrated. We need to assess all of these actions in their entirety – including the announced steel and aluminum tariffs on Mexico/Canada/Europe, country-specific retaliatory actions, NAFTA 2.0, China talks and Section 232 investigation on autos and auto parts. These actions are inter-related and must be viewed holistically.”
The Arvida Aluminum Smelter, AP60 Technology Centre of Rio Tinto
is located at the Complex Jonquiere in Saguenay, Quebec in Canada.
Rio Tinto is one of the world’s largest producers of aluminum. On August 1, 2018, Mr. J-S Jacques, Chief Executive of Rio Tinto, commented on the impact of the broad-based aluminum tariff on the company:
“Just to set the scene, the bulk of the aluminum produced in Canada is sold in the U. S. and we are supplying one third of all the aluminum consumed in the U. S., so we are clearly watching this whole trade situation, or potential trade situation, between the U. S. and Canada very, very carefully. Today, we don’t have any problem whatsoever. Remember you need to look at it through the lens of a consumer in the U. S. If you are a consumer in the U. S. you want to have access to a low-cost reliable source of aluminum. You could argue some of them want to have a green access to source, to have access to green aluminum as well, and the best aluminum you can think of is coming from our smelters in Canada. I mean, they are not in the first quartile of the cost curve, they are in the first decile of the cost curve. They are hydro based, and then on top of it when you think of the joint venture we signed with Alcoa and Apple to develop the inert anode technology, we are a few years away from having a purely green product there. At the end of the day from the consumer’s point of view in the U. S. I have no doubt, because the supply chain is so integrated between the U. S. and Canada, that common sense will prevail. Now back to your question about the premium and the duties, the way the pricing formula works is that there is no material impact for us at this point in time, and you saw it in the margins that we presented in the presentation today. The impact that we have in aluminum, which started last year and Chris [Mr. Christopher Lynch, Chief Financial Officer] did refer a few times in his speech, is about the inflation which has nothing to do with it. From the purely trade standpoint today the whole situation in relation to NAFTA, between the U. S. and Canada, had no material impact on our business at all.”
The Coca-Cola Company and The Boston Beer Company are among a number of consumer product businesses that are raising prices. In the cases of these two companies, the increases in price affect soda and beer products, respectively. Part of these price increases is reportedly because of the broad-based aluminum tariff, though the actual amounts of the price increases due specifically to the tariff have not been publicly disclosed by either company.
The aluminum smelter of Magnitude 7 Metals in Marston, Missouri.
Since this broad-based tariff on aluminum imported into the United States was first announced, several businesses have disclosed plans for substantial capital investments in aluminum production facilities. While these announcements may have followed the disclosure of tariff plans in Washington, it is likely that the capital investment plans had been under review and involved negotiations with governmental entities and utilities for some months or longer prior to actual announcements.
On the day after the signing of the new tariffs by President Trump, Magnitude 7 Metals announced plans to re-open an aluminum smelter in Marston, Missouri. The smelter had closed in 2016. The company reported that it anticipates hiring 450 people for jobs at this aluminum smelter.
“We’re excited about the potential that the Marston facility holds, and we look forward to becoming a valuable member of the community,” stated Mr. Bob Prusak, Chief Executive Officer of Magnitude 7 Metals. The company plans to produce primary and high purity aluminum at the smelter. At full capacity, according to the company, this smelter is expected to support the production of up to 263,000 metric tons of aluminum per year.
According to a news release from the Missouri Department of Economic Development, “A critical component to the company’s decision to re-open the smelter in Marston was their ability to negotiate energy costs that would allow the company to compete in the global aluminum market. The company was able to reach an agreement with Associated Electric Cooperative, Inc., which is owned by and provides wholesale power to six regional and 51 local electric cooperative systems in Missouri, Iowa and Oklahoma.”
Mr. David Tudor, Chief Executive Officer and General Manager of Associated Electric Cooperative, spoke highly of the re-opening of the aluminum smelter by Magnitude 7 Metals (M7M). “With hard work and creativity, Associated and M7M have reached an agreement that is good for the Bootheel [a section of southeastern Missouri], creates new jobs, and is good for M7M and Associated’s members.
“This agreement will enable M7M to start operation and begin adding jobs in southeast Missouri immediately,” continued Mr. Tudor. “Associated’s members will benefit through the more efficient use of available generating capacity, which helps offset the cost of service to all members.”
Century Aluminum Company operates an aluminum smelter in Hawesville, Kentucky.
On April 4, 2018, Governor Matt Bevin of the Commonwealth of Kentucky announced that Century Aluminum Company would invest approximately $116.5 million for improvements at its operation in Hawesville, Kentucky. “Kentucky’s aluminum industry continues to build upon the momentum generated within the sector in recent years,” stated Governor Bevin.
Two hundred and fifty additional jobs are anticipated to be created through this investment, according to the Commonwealth. Century Aluminum Company, the Commonwealth stated, “will use its investment to upgrade its smelting technology and to train new and existing employees to use the new equipment. The Hawesville operation produces high purity metal required for the defense, aerospace and electrical industries. The improvements to the facility will allow the company to remain competitive in the marketplace and increase capacity.”
Kentucky Governor Matt Bevin, United States Secretary of Commerce Wilbur Ross,
and Mr. Michael Bless, Chief Executive Officer of Century Aluminum Company, cut the ribbon
to ceremonially re-start the aluminum smelter at Hawesville, Kentucky, on August 22, 2018.
About four months after the announcement that Century Aluminum Company would invest approximately $116.5 million in its operation at Hawesville, the company held a ceremonial re-start of its smelter on August 22, 2018.
"We're thrilled to be joined by Commerce Secretary Wilbur Ross as we strengthen our economic footprint in Hawesville and bring back hundreds of jobs to Western Kentucky," stated Mr. Michael Bless, Chief Executive Officer of Century Aluminum Company. "The Trump administration's trade policies have provided much needed relief to America's primary aluminum workers – leveling the playing field and ensuring that the U. S. primary aluminum industry maintains its competitiveness on the world stage. Today's restart will allow us to return to 100 percent capacity in the months ahead while upgrading our smelting technology to ensure we remain competitive long into the future. We want to publicly thank President Donald Trump and Secretary Ross for their leadership on this issue."
"I'm pleased to celebrate Century Aluminum's reopening of the first of three pot lines that will in turn support America's manufacturing independence and enhance our national security," said Mr. Wilbur Ross, the U. S. Secretary of Commerce. "The aluminum sector has weathered the hardships caused by unfair foreign trade practices. For too long, the government ignored repeated warnings of the impact on the U. S. aluminum sector and its ability to support our armed forces. President Trump's initiatives are addressing the very problems previous leadership failed to confront with the urgency that these threats presented. This administration remains steadfast in our Made in the U.S.A. commitment."
For a number of years, Mr. Bless of Century Aluminum Company has advocated for the government of the United States to deal with “the global supply glut caused by the government of China's continued unfair subsidization of additional capacity expansion in China.”
On October 29, 2015, Mr. Bless stated "We are working actively with the industry and the U. S. government to address this situation, which must be rectified. Our collective goal is no more than fair trade and transparent markets and equal conditions for all industry participants.”
"Overcapacity and overproduction continue to subsist in great quantities in China,” stated Mr. Bless on October 27, 2016, “[thus] negatively impacting rational producers and markets in the rest of the world."
On August 2, 2017, Mr. Bless spoke of a continued “global supply surplus in primary aluminum.” He continued, “Enforcement of global trade laws, in our strong opinion, is necessary to level the playing field and ensure that all producers live up to their international obligations. It is only through a market in which all parties compete according to the same rules, that fair conditions can be achieved. We are confident our operations would thrive in such an environment, and are greatly encouraged by the leadership of the Trump administration in demanding this result."
"We at Century have long held the belief that the U. S. primary aluminum industry can be competitive and can win as long as a level playing field exists," Mr. Bless stated on March 1, 2018, the day that the ten percent broad-based aluminum tariff was announced by President Trump. "The fact that we finally have such a strong supporter of U. S. manufacturing and U. S. industrial workers in The White House is gratifying. I am privileged, on behalf of our employees and the communities they support, to thank President Trump for his strong leadership.”
According to the United States Department of Commerce, 23 aluminum smelters have been shut down in the United States since 2000.
“In looking at the numbers, the U. S. aluminum industry produced only 744,000 metric tons last year,” according to Secretary Ross. “U. S. demand for aluminum has been growing, but that demand has not been filled by U. S. producers. Imports accounted for almost 90 percent of the U. S. market last year.”
“On a global scale, U. S. aluminum production accounted for less than 1 percent of world output,” Secretary Ross continued. “And while U. S. production has steadily declined since 2000, China’s output of aluminum has increased by 1,390 percent, from 2.4 million metric tons in 2000 to a whopping 36.2 million metric tons in 2017. China’s output last year was 49 times higher than U. S. production, and almost all of it was sub-standard, and subsidized — produced by state-owned enterprises.”
Secretary Ross concluded, “For the first time in decades, we are changing the trajectory of the industry. Many have painted our efforts to create a level playing field and ensure the continued viability of the aluminum industry as the starting of a trade war. But ... manufacturing companies and workers … in thousands of rural communities have been fighting unfair foreign trade practices for decades. But our leaders have never fought by your side. This is not a new fight. This is a case of the U. S. government finally standing up for American workers, American families, and America’s national security.”
The top photograph is courtesy of Century Aluminum Company, 2018.
The photograph of bauxite is courtesy of Mr. Jim McDaniel and the Encyclopedia of
Arkansas History and Culture, date uncertain.
The photograph of the Wheatbelt facility in Hillsboro, Kansas, is courtesy of Wheatbelt, 2018.
The photograph of the water tower in Russia, Ohio, is courtesy of Scottamus, 2011.
The photograph of the Superior Aluminum Products facility in Russia, Ohio, is courtesy of Superior Aluminum, 2018.
The photograph of sunset in China, Maine, is courtesy of Mr. Jody Roberts, 2014.
The photograph of the Arvida Aluminum Smelter, AP60 Technology Centre is courtesy of Rio Tinto, 2018.
The photograph of the aluminum smelter of Magnitude 7 Metals in Marston, Missouri,
is courtesy of the Missouri Department of Economic Development, 2018.
The aerial photograph of the aluminum smelter of Century Aluminum Company
in Hawesville, Kentucky, is courtesy of the United States Geological Survey, 2013.
The photograph of the ceremonial re-start of the Century Aluminum Company smelter
at Hawesville, Kentucky, is courtesy of Century Aluminum Company, 2018.
Do you have questions about the aluminum industry?
Governmental regulations? Company operations?
Your questions may be used in a future news column.
Contact Richard McDonough at firstname.lastname@example.org.
© 2018 Richard McDonough