Aluminum Is a Poor Man’s Steel When It Comes to Fighting Chinaby
Prices have been sliding since 2011, threatening U.S. smelters
‘If we wait, there may be nothing left to talk about’
Century Aluminum Co.’s Michael Bless is on a crusade to save his industry from what he sees as its impending doom at China’s hand. So far, he’s struck out.
The chief executive officer hasn’t been able to persuade Alcoa Inc. to publicly back him. He invited all the presidential hopefuls last fall to tour a smelter, and nobody took him up on it. A glitzy documentary made by a group Century funds has scored only about 6,800 views on YouTube.
Bless says he’s frustrated but undeterred. China subsidizes its smelters to an extent that violates World Trade Organization rules, he says. What he wants is for the Obama administration -- or the one that comes next -- to put up as big a fight for aluminum makers as the U.S. has for those who manufacture steel.
“Something has to give,” he said after a tour of Century’s smelter in Hawesville, Kentucky, where the payroll has been cut by more than half in the past two years. China produces 55 percent of the world’s aluminum, and according to researcher Harbor Intelligence it plans to increase output in 2017 by more than 9 percent. “If we wait another year,” Bless said, “there may be nothing left to talk about.”
‘Devastating’ Job Losses
That might come off as hyperbole, but Bless could be right. With aluminum on the London Metal Exchange averaging about $1,564 a ton -- down from an average $1,682 last year after a slide from $2,800 in 2011 -- U.S. output is threatened, according to Harbor. If the price slips under $1,528, Harbor says, the five remaining smelters may have to close.
Century and Alcoa are the last two U.S. makers of primary aluminum, which is used in products from beer cans to F-16 fighter jets. While politicians have backed lobbying efforts for American steel that have won trade cases and succeeded in imposing duties, aluminum hasn’t received similar attention. That could have something to do with the fact there are about 140,000 workers in steel production, and some 3,500 in aluminum.
Down the chain, though, more than 100,000 jobs in aluminum-dependent sectors are at risk, Bless said. What’s more, said Lloyd O’Carroll, a senior analyst at CRU International Ltd., smelters “are all in rural areas, so it’d be devastating for those local economies.”
A main concern, according to Bless, is that outside China, Century’s smelter in Hawesville is one of just two in the world that mass-produces the high-purity aluminum used in U.S. defense applications; the other is Dubai Aluminum Co.
Manufacturers could, of course, simply buy the raw material elsewhere, such as Canada, a producer with lower costs and more capacity than the U.S. For its part, the Pentagon might not be worried about having to source the high-purity form from Dubai, which, after all, is a U.S. ally. The Defense Department didn’t respond to calls and e-mails seeking comment.
Aluminum giant Alcoa has significant overseas operations, including a plant near Shanghai. The company might not be giving Bless’s push for a WTO case any public support out of fear of retaliation and worries about a proliferation of tit-for-tat trade cases, according to Caitlin Webber, a Bloomberg Intelligence analyst. Alcoa declined to comment. The Aluminum Association has been pursuing “multiple policy options” in talks with U.S. officials, said Charles Johnson, the group’s vice president of policy.
Alcoa CEO Klaus Kleinfeld is on record complaining about China’s surging output of semi-finished products, which aren’t subject to Chinese export taxes. They can be remelted and recast into pure ingots once they reach their destination, and Klaus, calling them “fake semis,” has blamed them for driving down prices.
He might have a point, said Paul Adkins, the Beijing-based managing director of AZ China, a consulting firm. “The implication is that somehow China’s smelters are to blame for the world’s aluminum company woes. They are not. The principle form of China’s market penetration into the rest of the world is via semi-fabricated metal, and it’s in semis where China’s overcapacity is causing the problems.”
Bless doesn’t buy that, saying the breaks on taxes and power costs that the central and regional governments give to Chinese smelters are the main issues. China’s National Development and Reform Commission, the country’s top economic agency, didn’t respond to a request for comment.
Century is funding the nine-month-old China Trade Task Force, which says on its website that it wants to counter “communist China’s illegal manipulation of the global aluminum trade.” Its 8-minute documentary is called “China’s Attack on U.S. Aluminum Workers,” and focuses on Hawesville. An ad the group produced, which includes clips of Chinese soldiers and a shot of a ripped American flag, has done better on YouTube, garnering more than 23,600 views.
In April, the labor union representing aluminum workers filed a petition that asked President Barack Obama to use U.S. trade law to impose tariffs to stop the flood of imports. But the union withdrew the petition four days later after failing to garner any support, including from Bless. He said he didn’t want to distract from the WTO case he’s urging the U.S. to file. That “is the right mechanism.” The union didn’t respond to requests for comment.
A spokesman for Donald Trump, the Republican presidential nominee, said Trump would “slap defensive tariffs on any country that cheats.” A spokesman for Hillary Clinton said the Democratic nominee “will not tolerate attempts by China to solve its economic problems on the back of American workers.”
Century, with three plants in the U.S. and one in Iceland, has about 1,778 employees, some 25 percent fewer than in 2014. Hawesville, which at its peak produced 252,000 tons annually and employed 750, has dropped to a staff of 300 and cut capacity by 60 percent.
“We try to make a good product, we’re very proud of it, but we can’t compete against somebody that doesn’t follow the same set of rules,” says Jessie Applegate, a process-control operator in Hawesville. She’s worked there for five years and isn’t betting on five more. As it is, she says, “it’s like a ghost town around here.”