LONDON (Reuters) - Aluminum industry executives will line up on Thursday to have their say on whether foreign imports into the United States pose a threat to the country’s security.
The Section 232 investigation was announced by the Department of Congress on April 27 and follows hot on the heels of a similar probe into U.S. steel imports, the results of which are pending.
Section 232 of the Trade Expansion Act of 1962, to give its full title, was last used in 2001 against imports of iron ore with a “no action necessary” outcome.
This time around, everyone’s expecting a different result. The Trump administration has pledged to stem the rising metallic import tide and reverse the ebbing of the country’s primary aluminum production capacity.
The United States was once one of the world’s largest producers with 22 aluminum smelters. The number of operating plants is down to just five, although in truth a lot of them closed years ago due to hard economics rather than imports.
A Section 232 investigation allows for broad tariffs against any and all imports, an artillery barrage rather than the precision targeting of specific product anti-dumping penalties.
Which is why the North American aluminum industry is scrambling to direct U.S. President Donald Trump’s trade guns in the right direction.
U.S. imports of primary aluminum - top 10 suppliers:
U.S. imports of plate, sheet and strip - top 10 suppliers:
DON’T SHOOT US - WE’RE YOUR FRIENDS!
Because when it comes to primary aluminum metal, the greatest share of U.S. imports comes from over the border in Canada.
But, as everyone agrees, Canada is not the enemy here.
“U.S. aluminum trade with Canada is strategically vital and supports many American jobs,” according to a letter to Wilbur Ross, secretary of commerce, from the cross-party Congressional Aluminum Caucus.
Indeed, “for over twenty years U.S. law governing the armed forces has defined the U.S. national technology and industrial base to include Canada,” adds Alf Barrios, chief executive of Rio Tinto Aluminum, which ships 75 percent of its Canadian smelters’ output to its neighbor.
The two countries’ aluminum industries have been intertwined since 1928, when U.S. producer Alcoa span off its international operations to a new Canadian company called Aluminum Ltd.
With hindsight, handing over the low-cost, hydropowered Canadian smelter network that now forms Rio Tinto Aluminum may not have been the most prescient of moves.
However, World War Two and the urgent demand for a metal critical to aircraft manufacture saw U.S. and Canadian aluminum supply chains integrated to the extent that the United States was producing war materials in Canada to supply to Britain.
That level of coordination has continued ever since and “from WW2 Lancasters to 21st century Teslas, Canada’s reliability has always met the test”, according to the written testimony of Jean Simard, head of the Aluminum Association of Canada.
In other words, don’t shoot us, we’re your friends.
And while you’re at it, don’t shoot the Europeans either because they’re your friends too.
“The aluminum associations of U.S., Canada and Europe, can testify that there is no unfair competition between our three regions to the disadvantage of one of the industries we represent,” the trade bodies noted in a joint statement.
Europe doesn’t supply primary aluminum to the United States but it does ship a lot of semi-manufactured products, around 17 percent of total plate, sheet and strip imports last year, for example.
If you’re wondering about the identity of the second-largest supplier of primary aluminum metal to the United States last year, by the way, don’t expect much public enlightenment.
Russia is, perhaps not entirely surprisingly, keeping a very low profile in this Section 232 investigation.
But then this whole thing is not really about primary aluminum at all.
There have been some throwaway comments about the importance of high-purity metal for specific military applications but industry analysts HARBOR point out that existing U.S. output meets defense requirements three times over. (“Special Analysis: Is high-purity aluminum a national security concern for the U.S.?”, April 27, 2017)
The real target, as far as the North American and European aluminum sectors are concerned, is the amount of Chinese semi-manufactured product (“semis”) entering the supply chain.
The United States doesn’t import much Chinese aluminum metal because China doesn’t export aluminum in that form, just 17,000 tonnes last year.
China’s massive aluminum sector is highly vertically integrated to the point that over half of all smelter output is in the form of hot, molten metal which is then transferred to a products casting plant.
And China exports a lot of “semis”, over 4 million tonnes in both 2015 and 2016.
U.S. imports of Chinese plate, sheet and strip last year represented around 38 percent of the total, according to figures from the International Trade Centre.
Some of these are essential for U.S. manufacturers. The Aluminum Association asks, for example, for a dispensation from any tariffs for Chinese aluminum powders and flakes.
Many of them have in the past been what the Canadian association terms “wrongly classified and misrepresented products”. Aluminum traders call them “fake semis” and a mountain of them is once again sitting in Vietnam, having been rejected by North American users.
Most of them are just what they purport to be. It’s just that there is too much of the stuff.
Chinese imports, according to Marco Palmieri, head of the North American operations of aluminum products giant Novelis [NVLX.UL], have already “forced us to exit certain product lines”.
The collective and unanimous bottom line is that, to quote the three aluminum associations, “the issue of Chinese excess capacity (is) the root cause of the challenges faced by the aluminum industries in North America and in Europe”.
The Russians, by the way, agree, but they’re not going to say so right now.
China, let us remember, has lifted its aluminum production from 2.8 million tonnes at the start of the century to 31.6 million tonnes in 2016. Last year’s tally represented around 54 percent of the global total.
It’s a remarkable grab of a global supply chain.
And one, industry executives outside China believe, that has been based on what Canada’s Simard calls “a plethora of market distortions”.
The previous Obama administration also agreed, which is why its parting trade shot was a complaint about China’s alleged aluminum subsidies to the World Trade Organization.
The WTO calls for bilateral talks. The aluminum associations are pushing Chinese overcapacity onto the agenda of the G20 countries for multi-party talks. Steel is already there.
“Ultimately,” notes Heidi Brock, head of the U.S. Aluminum Association, “our view is that the best solution for the U.S. aluminum industry and the jobs it supports would be a negotiated agreement with China that results in measurable reductions in Chinese aluminum capacity and/or growth.”
The pressure for China to engage with the rest of the world about its aluminum sector is becoming irresistible.
Talks will take time, though.
The Section 232 process is a fast one, requiring the secretary of commerce to report to the president within 270 days from the start of the investigation.
This secretary of commerce may not take that long.
And this administration looks minded to start shooting first and talk later.
Just as long as everyone’s agreed on where the guns are aiming, right?
(This version of the story corrects name to Rio Tinto Aluminium from Rio Tinto Alcan in paragraph 14).
Editing by Dale Hudson