U.S. Aluminum Industry Strikes at Chinese Overcapacity During 232 Hearing

The Department of Commerce’s Section 232 hearing regarding imports of the metal gave domestic aluminum entities across the supply chain a chance to make their concerns heard. The hearing came less than a month after the 232 steel hearing, which was held May 24.

The aluminum hearing kicked off at 9 a.m. Eastern Time, and featured a roster of 32 speakers, including foreign dignitaries.

The full video of the hearing is available on the Department of Commerce’s YouTube page.

The Trump administration launched the Section 232 investigation in April (the last Section 232 investigation took place in 2001, which looked into iron ore and semi-finished steel). Section 232 of the Trade Expansion Act gives the president authority to direct the secretary of commerce to investigate whether certain imports have national-security implications. The secretary then provides the president with policy recommendations at the conclusion of the investigation. Regarding the Trump administration’s steel and aluminum 232 investigations, many expect the adoption of tariffs to disincentivize Chinese imports.

Unsurprisingly, Chinese overcapacity and the resulting unfair business environment that a glut of global aluminum creates was a consistent throughline Thursday morning.

Kentucky State Sen. Jim Gooch Jr. was the first to step behind the lectern to speak. U.S. smelters have dwindled since the turn of the century, but Century Aluminum operates two smelters in the Bluegrass State (one in Hawesville, the other in Sebree).

“Once these facilities are shut down, they’re usually gone for good,” he said. “The loss to local employment, tax revenue, technology, skills and expertise are permanent. Unfortunately, we’re already at the tipping point of what’s left of this great industry.”

Also unsurprisingly, Li Xie, who directs the export division of China’s Ministry of Commerce, argued trade regulations are not the answer.

“We believe that unilateral trade restrictions are not conducive to solving the problem of the U.S. and the global aluminum industry,” Xie said.

He also told the panel that Chinese imports do not negatively impact the U.S.’s national security.

“Aluminum products imported from China are general products with civilian uses, such as drillers, packing, roofing, road signs and consumer durables,” he said. “None of these products implicate national security.”

Xie added China has taken measures to eliminate excess capacity. When asked by the panel about specific efforts the Chinese government has taken to cut back on excess capacity, Xie said a written report would be submitted on the subject.

Xie was followed by Talal M. Al Kaissi, of the UAE embassy’s Trade & Commercial Office, and Lurii Stegnii, Russian deputy trade representative.

Heidi Brock, president and CEO of The Aluminum Association, hoped any policies implemented by the Trump administration exempted fellow NAFTA member Canada and European Union nations which have been determined to be market economies — or, as she said during a conference call Wednesday, “play by the rules.”

Similarly, Gerd Gotz, director general of European Aluminum, hoped European producers would not get caught in the crossfire of any trade policy remedies aimed at China.

“We of the European industry believe that addressing the root causes of these problems requires continued joint efforts of the U.S., Canada and Europe,” he said. In the context of the 232 investigation, Gotz asserted European imports are not a threat to national security, and European aluminum producers function under market-economy conditions and without government subsidies.

Robert Scott, director of the Economic Policy Institute, like other industry speakers after him, painted a bleak picture for the domestic industry, which he said is “hanging on only by a thread.”

Between 2000-2017, Chinese primary aluminum production capacity has increased by nearly 1,500%, Scott said.

“Collapsing prices have decimated U.S. primary aluminum production, capacity and employment,” he said, adding that the LME price of aluminum fell 39% between 2007 and 2016.

While most of the speakers identified Chinese overproduction as the primary factor in the U.S. industry’s struggles, some explained that Chinese imports are important — necessary, even — for their companies.

For example, Steve Casey, senior director of procurement for Bemis Company Inc., said there is only one domestic producer of converter foil, and its entire capacity is not enough to meet Bemis’ annual needs.

“Increased prices or quotas for aluminum foil will open the door for imports of finished packaging, resulting in a loss of market share, profitability and ultimately employment,” Casey said.

He continued: “The present Section 232 investigation should not be used to restrict imports of aluminum foil for commercial uses, as the result would be grave economic consequences for the domestic manufacturing facilities of Bemis, other packaging producers and our customers.”

Similarly, Jim McGreevy, president and CEO of the Beer Institute, said 98% of is aluminum can sheet is sourced domestically, but that imported primary aluminum is essential.

“Tariffs or other measures limiting the importation of primary aluminum, or can sheet, will hurt our economic activities and the jobs our industry supports,” McGreevy said. “Imports of primary aluminum for can sheet manufacturing do not threaten national security.”

Overall, however, the message from the domestic aluminum industry was clear: “something needs to be done about Chinese excess capacity.”

Michael Bless, president and CEO of Century Aluminum, after citing statistics regarding closures of U.S. smelters and employment losses, said what should have been a good era for the domestic industry was not that because of Chinese overcapacity.

“This should have been a healthy period for America’s smelters,” Bless said. “Instead, prices have collapsed due to ever-expanding overproduction led by state-owned and state-invested enterprises inside and outside China.”

While steel has perhaps gotten more of the Section 232 limelight, aluminum is a vital metal with an array of uses — commercial, military and otherwise.

Secretary of Commerce Wilbur Ross is expected to announce the findings of the investigations in the near term. Some within the U.S. industry hope policy changes aren’t unnecessarily broad in scope — particularly in terms of which products are relevant to national security — Chinese overcapacity is perceived by most in the industry as a major threat, not just to U.S. producers but to market economies worldwide.

Now, it’s up to the Trump administration to decide what to do about that perceived threat, whether through tariffs, quotas, or a hybrid solution.