Which sledgehammer will Trump use on U.S. aluminium imports? Andy Home
(The opinions expressed here are those of the author, a
columnist for Reuters)
* CME Aluminium Premium Futures: http://tmsnrt.rs/2BH0k1i
* U.S. Imports of Primary Aluminium: http://tmsnrt.rs/2p55b28
* U.S. Imports of Semis: http://tmsnrt.rs/2p8lD2x
By Andy Home
LONDON, Feb 20 (Reuters) - The U.S. Department of Commerce
has "found that the quantities and circumstances of steel and
aluminum imports" threaten to "impair the national security" of
the United States.
The outcome of the twin "Section 232" investigations into
the United States' import dependency is no great surprise,
although the legal reasoning may well be a future payday for
international trade lawyers.
Commerce Secretary Wilbur Ross conceded he wouldn't be
surprised if countries challenged any U.S. action at the World
Trade Organization (WTO).
It's a distinct possibility given the Commerce Department's
recommendations for sweeping tariffs and quotas on any and every
But WTO disputes are long and winding affairs, while the
"Section 232" process requires U.S. President Donald Trump to
decide what action to take by April 11 (steel) and April 20
It is possible that he will decide to do nothing at all.
No-one's holding their breath.
The aluminium market has already placed its bets. CME
futures contracts for physical U.S. aluminium premiums
jumped from 13 to 15 cents per lb as the news broke on Friday.
Given the United States' imports of primary aluminium now
account for 90 percent of national demand, the potential
implications for pricing are huge.
The goal, by contrast, is a modest one. "Success" would
require the restart of just 500,000 tonnes of idled U.S.
Graphic on CME aluminium premium futures' reaction to
release of the Section 232 report:
Graphic on U.S. imports of primary aluminium:
Graphic on U.S. imports of aluminium semis:
TAKE (CAREFUL) AIM AND FIRE
The outcome of the aluminium investigation may not have come
as a shock, but the scale of potential measures was totally
The Commerce Department takes aim at all aluminium imports,
from primary metal to plate and sheet, tubes and foil. The only
exclusions are scrap and powders.
It is proposing either an across-the-board import tariff of
7.7 percent or a quota system limiting imports to 86.7 percent
of last year's levels.
A third option would be to target five countries with a
draconian 23.6 percent tariff with everyone else subject to a
quota also set at last year's imports.
Top of the hit list is China, the largest supplier of plate
and sheet to the U.S. market and explicit target number one in
the Commerce report.
Also on the list are Russia, second largest supplier of
primary aluminium to the United States, Venezuela, Hong Kong and
These five countries, according to the Commerce Department
are "the source of substantial imports due to significant
overcapacity, and/or are potential unreliable suppliers or
likely sources of transhipped aluminum from China."
It's worth noting that any measures would run alongside
specific countervailing duties, such as that imposed last
October on imports of Chinese foil and that pending on imports
of Chinese alloy sheet.
The sledgehammer nature of the proposals has caused
considerable consternation and not just in China, which was
quick to describe the report as "baseless".
The European Aluminium Association called for a global
dialogue on structural overcapacity rather than potential
unilateral action that risked "distorting global trade flows and
interfering with the current trading relationship between the
United States and Europe."
However, there is plenty of scope for further refinement in
Countries can seek exemptions from any measures. U.S.
manufacturers can ask for exceptions to be made for specific
products that cannot be supplied in the United States.
It seems impossible, for example, that Canada, the largest
supplier of aluminium metal to the United States, would not be
excluded from any tariffs or quotas.
The Commerce Department itself notes that "the U.S. and
Canadian defense industrial bases are integrated," a
relationship that "has existed since 1956 and is codified in a
number of bilateral defense agreements."
Which other countries might qualify as an equally "reliable
supplier" will be down to President Trump.
REFIRING U.S. SMELTER CAPACITY
While the potential ramifications for global aluminium flows
are huge, the stated goal of the whole exercise is relatively
"Each of the three proposals is intended to raise production
of aluminum from the present 48 percent average capacity to 80
percent, a level that would provide the industry with long-term
The days when the United States was the largest producer of
aluminium in the world are long gone with most of the lost
smelters dismantled and beyond resurrection.
The country's smelting base now totals just eight plants
with combined annual production capacity of 1.82 million tonnes.
Actual production last year was 785,000 tonnes, translating
into a capacity utilisation rate of 43.2 percent.
To get to the targeted 80 percent level would require
669,000 tonnes of idled capacity to be brought back, the
Commerce Department calculates.
One producer, Alcoa, has already committed to
restarting three potlines with capacity of 161,400 tonnes at its
Warrick smelter in Indiana.
The ramp-up is expected to be complete in the second quarter
of this year and lifts national capacity utilisation to the 48
Another 500,000 tonnes of restarts would be "mission
accomplished" for the U.S. administration.
Alcoa has 340,000 tonnes of capacity still idled. Century
Aluminum has 265,000 tonnes and there is the fully
idled 265,000-tonne per year New Madrid plant in Missouri, owned
by Swiss trade house ARG International.
A higher domestic aluminium price would of course be a
powerful incentive to reactivate idle potlines.
But equally important is the ability to lock in a secure,
competitively priced power supply deal for what are huge
continuous electricity consumers.
The long-running contraction of the U.S. smelter sector has
had as much to do with power costs as with imports.
Even the Commerce report concedes that "one of the main
reasons for the decline in U.S. primary aluminum production
capacity is that the United States is a relatively high cost
That won't change even in the event of President Trump
imposing tariffs on everyone else.
If he decides to use that particular sledgehammer.
He has a choice.
As Secretary Ross explained, the President has "discretion
to modify any of these or to come with something totally
(Editing by David Evans)
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