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Aluminum Makers Heavy on China Criticism, Lack Consensus on Fix

Sept. 29, 2016
Alcoa Inc., Century Aluminum Co., Novelis Inc. and other producers testified Thursday in front of the U.S. International Trade Commission.

U.S. aluminum producers are clear that China is largely to blame for their woes. What they lack is consensus on what to do about it.

Alcoa Inc., the biggest U.S. producer, Century Aluminum Co., Novelis Inc. and other producers testified Thursday in front of the U.S. International Trade Commission. Several speakers said that China is subsidizing its companies with tax breaks and loans, hurting U.S. makers of primary aluminum and downstream products.

When asked by ITC commissioners what would be the best way to resolve the problem, many called for constructive dialogue.

“A negotiated resolution to this is the best outcome for all of us,” Garney Scott, president of aluminum recycler and trader Scepter Inc., said in testimony.

The hearings come after a flood of aluminum exports from China depressed international markets. China has set a priority of shuttering surplus industrial capacity as the country shifts from a capital-intensive to a consumption-led economy, and Chinese smelters pledged late last year to cut output as metal prices fell to the lowest in six years.

‘First Step’

“We believe implementation and enforcement of the State Council’s plan would be a positive first step to reducing China’s overcapacity,” Tim Reyes, the president of Alcoa Cast Products, said at the Washington hearings.

Others called for the U.S. to take direct action.

Lloyd Stemple, who heads a Constellium NV unit in the U.S., said his company’s can sheet customers continue to increase purchases from China because of lower prices. He recommends the U.S. impose a 30 percent import duty on Chinese rolled products.

Primary aluminum production in the U.S. faces the possibility of having to shutter if prices fall below $1,528 a metric ton, according to Austin, Texas-based researcher Harbor Intelligence. Aluminum for delivery in three months settled at $1,665 on Wednesday, down about 50% from a 2008 high.

Century Aluminum Chief Executive Officer Michael Bless, who offered testimony at the hearing, said in an interview published in August that China’s actions violate World Trade Organization rules, and that he wants the Obama administration, or the next one, to take up that fight.

The Aluminum Association, a U.S.-based group that represents aluminum companies, has said there’s evidence that some surplus metal enters the U.S. through transshipment and re-labeling of aluminum products in third countries to circumvent anti-dumping and countervailing duties.

To be sure, some in the market say the oversupply in the market is due to years of overproduction by everyone, not just China. About 60 percent of the overproduction in past years has come from China and 40 percent from the rest of the world, according to Harbor, adding that output exceeded demand in 11 years from 2001 to 2015.

“Although China has overproduced in the last 15 years, most of it has been absorbed by its expanding domestic upstream and downstream industries for working inventory and buffer stock purposes,” Jorge Vazquez, Harbor’s managing director, said in a telephone interview.

Allegations of aluminum transshipping are “ groundless, distorting facts,” China Nonferrous Metals Fabrication Industry Association said in a statement posted on the website of parent group China Nonferrous Metals Industry Association.

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Licensed content from Bloomberg, copyright 2016.

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