The Aluminium Association of Canada (AAC) brings together Canada’s three primary producers of aluminium, Alcoa, Aluminerie Alouette and Rio Tinto. A non-profit organization, it represents the Canadian primary aluminium industry. AlCircle had an opportunity to interact with Jean Simard, President and CEO, Aluminium Association of Canada on a number of topics related to the Canadian aluminium sector and the North American integrated aluminium value chain. He shared an insight into the operations of the Canadian aluminium value chain, Canada’s current trade concerns with the US and Trump’s 10 per cent tariffs on imported aluminium.

Here is an excerpt from the interview: 

AlCircle: Please give us a heads up on the aluminium ecosystem in Canada. 

Jean Simard: Canada is home to three world-class operators, Alcoa, Aluminerie Alouette and Rio Tinto. They operate 10 plants with 9 in Quebec, and 1 in Kitimat, British Columbia on the western seaboard. Ranked fourth in the world, the industry exports 90% of its production, mostly to the US. With its 100% hydro based capacity, it produces the world’s lowest carbon footprint aluminium at 2 tonsCO₂ per ton. Its strong 3 000+ suppliers base includes smelting equipment manufacturers who export around the world. Canada is also home to world-class research centres on aluminium, including the recent addition of the Elysis project, which will take us from low carbon to no carbon production.

Canada produced over 2.9 million tonnes of aluminium in 2018, 300 kilo tonnes less than our average because of a labour issue at one of the plants.

AlCircle: It has been a year the 10% tariffs on aluminium were implemented by Trump. How do you think the tariffs have affected the integrated North American supply chains so far? 

Jean Simard: Through increasing the cost to use aluminium in North America, the 10% tariff has impacted SME’s throughout the value chain in the US mostly, who have been priced out of the market to the benefit of other foreign suppliers. While it doesn’t generate the foreseen reinvestments in the US primary sector because of the age of existing capacity, it hinders the growth of capacity in Canada, the US’s safest and most reliable supplier, to the benefit mostly of China’s overcapacity, at the origin of most of these trade imbalances. And the pain is just starting to show, while both Canada and Mexico have made it clear that they will keep their tariffs in place, as long as the US.

AlCircle: Have the tariffs negatively affected the total aluminium export by Canada in 2018?

Jean Simard: No but we can start seeing a shift towards our new free trade partner, Europe.

AlCircle: We would like to know your view on the United States-Mexico-Canada Agreement (USMCA). How will it change the trade equation among the three countries? 

Jean Simard: Well, first of all, it would need to go through the final ratification process in all three country, which at this point seems very unlikely. Should it come into force at some point in time, it will create a robust trade corridor within which the three countries will be able to grow their economies while adhering to a modernized set of rules in labour, IP, environment and integrated value chains such as automobile through Rules of Origin.

AlCircle: The US has proposed quotas that would cap the amount of Canadian steel and aluminium crossing the border. Would the Canadian government agree to it? 

Jean Simard: The Canadian government is against quotas as it represents an inefficient managed trade approach which in the case of an integrated value chain such as the North-American aluminium industry would have a totally disruptive effect on the required fluidity of access to the metal and its products. Why should Canada accept to abandon its hard-earned market shares in the US, to the benefit of some US-based foreign-owned producers, or other regions of the world? At best, the US can hardly ramp up and sustain 2 million tons of capacity while it will be consuming 6 million tons a year. There would follow costly stockpiled inventories in order to build flexibility, increasing costs, and fostering market manipulation by traders who could benefit from controlling stockpiled inventories. There is no place in a modern world between 3 countries bound by a modernized FTA for quotas.

AlCircle: Will USMCA prevent future disputes over Canadian exports of automobiles to the US? 

Jean Simard: There are no reasons to have such disputes anyhow. This is an integrated value chain benefiting the whole of North America. We are competing together, against the rest of the world to the benefit of our citizens, workers and shareholders.

AlCircle: Do you think Canada will get a quota-free exemption from aluminium tariffs anytime soon? 

Jean Simard: Canada should not accept anything else anytime soon…

AlCircle: Do you think protective trade measures can improve the aluminium sector in the US? 

Jean Simard: No! the numbers are there and they are real: increased demand in an already deficitary market by a ratio of one to three, while existing potential restart capacity, 50 years old on average doesn’t make the grade. The US advantage is clearly in its mid-and-downstream segment of the aluminum industry that accounts for 97 percent of US aluminum jobs. And we are talking about close to 100 well-paid jobs in the mid-and-downstream for every job in the primary sector. Targeted trade enforcement and tough negotiations to address subsidized overcapacity in China is the only way to go.

AlCircle: What will be the business strategy for Canadian aluminium sector in presence of the current US tariffs on aluminium?

Jean Simard: Stay the course, as a reliable world-class supplier of responsibly produced low carbon footprint aluminium to our US customers. Take stock of our privileged access to Europe through CETA, and keep working on productivity improvements in our plants, in order to compete against the best in the rest of the world.

Disclaimer: “The information presented herein is neither intended nor implied to be a substitute for professional advice. The views and opinions shared in the interview section of www.alcircle.com are unique to the interviewees and do not necessarily reflect the viewpoint of www.alcircle.com."