Aluminum Industry Players Disagree on Best Way to React to Overcapacity
Less than two weeks before Canada will impose 10% tariffs on $2.7 billion in aluminum-containing goods, the Aluminum Association, and the much smaller American Primary Aluminum Association, squared off on a Sept. 3 Washington International Trade Association panel, with the Canadian Aluminum Association and aluminum customers complaining about being caught in the crossfire of the U.S.-China conflict.
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Robert DeFrancesco counsel to Century Aluminum, one of the two companies in the APAA, said that without some protection, “there would no longer be a primary aluminum industry in the United States.” He said in a national crisis, the U.S. cannot be wholly dependent on foreign countries for essential goods, even allies.
The tariffs that Canada is responding to are on Canada's unwrought aluminum, which the Office of the U.S. Trade Representative says has surged.
Aluminum Association CEO Tom Dobbins said that the most recent data, from June and July, shows drops of exports to the U.S. in this category. His association -- which includes Alcoa, the largest smelter in the U.S. -- opposes the tariffs on all countries, preferring to use antidumping law and international negotiation to address what he calls the root causes of the problems of the U.S. smelters.
Even at full capacity, U.S. smelters would only produce one-third of the primary aluminum used in the U.S., he said. “The alternatives to Canada are Russia, the Middle East and China,” he said. “Unfortunately the biggest beneficiaries of the new tariffs will be metal traders.”
Throughout the panel, DeFrancesco, Dobbins and Aluminum Association of Canada President Jean Simard argued over how to view the import statistics, why Canadian aluminum is more competitive, and whether Century Aluminum and Magnitude 7 Metals have the national interest, or their self-interest, in mind.
Simard said the U.S. and Canadian aluminum industries are complementary, with cheap, clean Canadian hydropower producing cost-competitive raw aluminum, and the U.S.'s larger workforce using aluminum to create parts for the auto, aerospace and many other industries. He said focusing on the amount of primary aluminum coming in is unfair, because any time there is an economic downturn, aluminum producers stop making alloys, which are designed for specific end customers, because those customers have curtailed (or in the case of COVID-19, stopped) production. He said that overall, imports dropped 5% from Canada in 2020, compared with the pre-tariff benchmark in 2017.
Kathleen Black, director of federal relations for Coca-Cola, told the panel she spends a lot of her time on aluminum tariffs, and she said that trade remedies are designed to give the U.S. player time to get back on its feet and invest. She questioned whether Century and Magnitude did so, and said she fears the tariffs will be permanent.
She said that if Canada's electricity is really the differentiator, and if aluminum smelting is so critical to national security, why doesn't the Department of Energy directly subsidize electricity for aluminum smelters? When DeFrancesco protested that the U.S. doesn't want to subsidize, it just wants other countries to stop subsidizing, she said, “We downstream users are paying your subsidy for you.”
U.S. Metal Powders President Louise Ramsey Thomas also called in to the webinar, and asked how is her company to manage, since it buys Canadian aluminum ingots, now taxed, process it into metal powder, and then export it to Canada. Aluminum powder is one of the potential targets of Canadian retaliation.
DeFrancesco replied that she could ask for an exclusion. He said removing the 10% tariffs on aluminum when China continues to subsidize production would be unilaterally disarming “while we hope for some sort of negotiated solution.”