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China foiling a stalwart

Will trade action save the under-pressure U.S. aluminum industry?

By: Chris Gillis
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Photo: Ratchat/Shutterstock
   Amid a steep drop in U.S. production capacity of aluminum, the United States earlier this month filed a trade enforcement complaint in the World Trade Organization concerning China’s continued subsidization of its aluminum producers.
   The Office of the U.S. Trade Representative said Chinese subsidies have artificially expanded China’s aluminum industry and output, resulting in a significant reduction in global aluminum prices.
   “Artificially cheap loans from banks and low-priced inputs for Chinese aluminum are contributing to excess capacity and undercutting American workers and businesses,” said outgoing U.S. Trade Representative Michael Froman in a Jan. 12 statement.
   Members of the U.S. Congressional Aluminum Caucus and industry praised the Obama administration for taking action against China in the WTO, but in the same breath acknowledge the ugly truth that China’s uber-production of this metal has put a huge dent in U.S. primary aluminum production. It’s a development from which the domestic industry may never recover.
   “The aluminum industry has flourished for more than a century, but today American smelters are being shuttered,” said Rep. Mike Kelly, R-Pa., a member of the caucus on Capitol Hill. “Even though aluminum demand has increased in the United States, domestic production has plummeted. With unfair subsidies and state-controlled banks, China has quadrupled its aluminum exports over the past decade, which has flooded the world market and depressed prices.”
   The USTR noted that even in the face of falling aluminum prices, China has continued to expand or build new aluminum production facilities. Between 2007 and 2015, Chinese primary aluminum production increased by 154 percent and capacity rose 243 percent, while global prices for the metal dropped 46 percent. Also during this period, USTR said U.S. primary aluminum production decreased 37 percent and capacity decreased 46 percent.
   “The number of U.S. aluminum smelters fell from 14 in 2011 to five in 2016, with only one operating at full capacity,” USTR said.
   “China’s subsidies have done enormous damage to the U.S. and global aluminum industries,” Michael Bless, president and chief executive officer of Century Aluminum, said in a statement. “Following a series of closures due to Chinese overcapacity, Century operates three of only five remaining smelters in the United States.”
   Yet, at the same time, U.S. use of aluminum in myriad products has blossomed. Besides the smelters, there are still plants throughout the country that re-melt and shape aluminum into products for other businesses, such as cans for the beverage industry, door and window frames for the construction trades, and even pickup truck beds, in the case of Ford Motor Co.

Between 2007 and 2015, Chinese primary aluminum production increased by 154 percent and capacity rose 243 percent, while global prices for the metal dropped 46 percent

   The Washington-based Aluminum Association noted that between 2013 and 2016, the economic impact of the domestic aluminum industry increased by 15 percent and now equates to $186 billion in annual economic output, or more than 1 percent of GDP.
   Yet more of the aluminum used in U.S. production is now originating from Chinese aluminum smelters.
   According to the Aluminum Association, China operates 180 smelters and plans to construct more. The country produces 55 percent of the world’s primary aluminum today.
   “But even as the Chinese economy and metal demand has softened, China continues to build smelters,” said Heidi Brock, president and CEO of the Aluminum Association, in testimony before the U.S. International Trade Commission on Sept. 29, 2016.
   The ITC is investigating the Chinese aluminum industry for a report to Congress due June 24.
   “China’s capacity grew by nearly 12 percent last year, with plans to increase capacity further in the coming years,” Brock said. “This kind of growth is not warranted by conditions in the marketplace globally and certainly not China.
   “Much of this expansion is being driven by misguided government policies such as artificial incentives, subsidies and provincial or local government employment programs, all of which encourage the steady build-up in excess and oversupply. The simple fact is this—Chinese producers are not responding rationally to market signals, and they are not acting fairly or responsibly as members of the global economic community.”
   U.S. smelters admittedly face higher production costs against Chinese producers, not only due to the overcapacity, but against China’s weaker environmental controls and use of coal instead of more expensive and cleaner bauxite to manufacture aluminum.
   The U.S. aluminum industry was heartened in early September 2016 when the U.S. and Chinese governments announced a joint commitment to address aluminum overcapacity during their bilateral meeting on the margins of the recent G-20 meeting in Hangzhou, China. However, China continues to show a lack of control over its aluminum exports.
   China attempts to discourage the exports of primary aluminum by accessing a 15 percent duty. However, the global aluminum industry pointed out that Chinese manufacturers will instead make semi-manufactured aluminum that benefits from a value-added tax rebate of 13 to 17 percent. Once these “semis” reach their overseas markets, they’re often re-melted for use in other products.
   The industry has also presented strong evidence to U.S. and European regulators that China is transshipping tons of fake semis though Vietnam, with the sole purpose of evading Chinese taxes and bypassing countervailing and antidumping duties on extruded products.
   The aluminum dispute between the United States and China may heat up further under the incoming Trump administration, which has vowed to take immediate action against China’s myriad alleged trade violations by imposing increased import tariffs.
   Meanwhile, U.S. Customs seized a $25 million stockpile of aluminum semis in the Port of Long Beach and will conduct tests to determine whether it’s illicit transshipment, tax-evading scheme, according to a Jan. 14 Wall Street Journal news report. The aluminum is believed to be linked to the Chinese business titan Liu Zhongtian, who, along with his various companies, is suspected by U.S. authorities of involvement in criminal activity, including smuggling, conspiracy and wire fraud. Aluminum smelter China Zhongwang Holdings and Liu have both denied any wrongdoing in connection to the aluminum seized by U.S. Customs, the newspaper reported.