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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

The US aluminium tariff wall is crumbling

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Andy Home -


It is almost a year since the United States imposed duties on imports of aluminium and steel on national security grounds. If the aim of the so-called ‘Section 232’tariffs was to lift domestic production, President Donald Trump’s administration can claim a degree of success.


US output of primary aluminium has started rising sharply thanks to restarts of idled capacity, although not all of them have been directly down to the 10 per cent import tariff.


If, however, the aim was also to tackle rising import penetration, particularly by Chinese aluminium producers, tariffs may already have passed peak effectiveness.


Ever more gaps are appearing in the aluminium trade wall as the number of exclusions granted for specific products lengthens. China has been a major beneficiary of the exclusions process with approved import tonnages not far off actual volumes in 2017.


It has fared considerably better than Canada, long-standing US ally and a strategic supplier of aluminium to its neighbour.


Hardly any Canadian metal has been excluded from the tariffs, which is why the country’s Foreign Minister Chrystia Freeland is lobbying hard for a full exemption.


So runs the law of unintended consequences but it also highlights the limited effectiveness of tariffs if, like the United States, you are heavily import dependent.


The Commerce Department’s January 2018 report recommending action on aluminium imports explicitly targeted lifting domestic production capacity utilisation from 39 per cent in 2017 to 80 per cent.


By the end of last year US primary aluminium output was running at an annualised rate of 1.15 million tonnes, equivalent to 63 per cent of domestic capacity, according to figures from the Aluminium Association.


It should rise further as Century Aluminium reactivates a third idled line at its Hawesville smelter in Kentucky. The first line kicked back into life in the third quarter and the second was due by the end of last year.


Century is one of three companies actively rekindling US production.


Magnitude 7 Metals has resumed operations at the New Madrid smelter in Missouri. The import tariff has certainly helped but the restart plans were underway as soon as the plant was bought in 2016.


Similarly, Alcoa’s restart of idled capacity at its Warrick smelter in Indiana was announced at the end of 2017, before Commerce had submitted its report, and was driven, the company has since stressed, by plant-specific economics not tariffs.


It remains to be seen how much more dormant capacity can be coaxed back into life because the economics of smelting aluminium remain challenging.


Alcoa reported a Q4 2018 operating loss in its aluminium segment and the price of the metal has sunk further since then. Trading at $1,860 per tonne on the London Metal Exchange on Tuesday morning, aluminium has failed to bounce much from January’s one-year low of $1,785.50.


Ask just about any analyst what’s going on with the bombed-out price and you’ll be pointed in the same direction.


China’s exports, mainly of aluminium in semi-manufactured product form (semis), surged 21 per cent to 5.8 million tonnes last year.


They jumped again to 552,000 tonnes in January, the growth rate accelerating to 26 per cent. China has for several years been the dominant source of US imports of aluminium “semis”.


There are anecdotal reports that Chinese exporters are shipping more to other Asian countries and less to the United States, partly due to antidumping duties on specific products and partly due to the broader US-China trade tensions.


Yet, any “Section 232” barriers to Chinese imports are rapidly disintegrating.


The US Commerce Department had approved 108 exclusion requests for Chinese aluminium as of Dec. 18, according to a study by the Mercatus Center at George Mason University.


Such a request is granted if the applicant can demonstrate that there is no domestic source of a specific product. — Reuters


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