Aluminium trade restrictions on China will not bring smelting back to the US – UNO

The slow death that the US primary aluminium industry has been dying cannot be attributed only to China’s somewhat overambitious aluminium trade policies, said leading consultancy UNO International Trade Strategy. The consulting body warned that the ‘onerous and misplaced barriers will only damage America’s thriving downstream sector.’

The US primary aluminium industry has turned globally uncompetitive. From 23 thriving smelters in the country in 2011, the number now stands at only five. Many of the big names in the upstream aluminium sector have filed for bankruptcy.

UNO attributes the outcome to the following causes:

Higher cash cost of smelting

US is essentially a high-cost country. “The upstream producers are hamstrung by high electricity costs, strict environmental regulations and a strong dollar which collectively undermine their competitiveness,” the UNO said in its report.

The average cost of aluminium smelting in the US is $1,723 per tonne compared with a global average of $1,348. The average cost for China, on the other hand is $1,374. In Russia and Canada the cash costs are $1,268 and $1,212 respectively.

Focus shifted to downstream production

There has been a strategic shift to the production of downstream or value-added aluminium products. “This shift has been driven by the pricing premiums and higher profit margins of value added products compared to the upstream business. The increased focus on value added products has largely offset the struggles of primary producers such that the overall US aluminium industry – the entire value chain encompassing the upstream and downstream sectors – grew by three percent in 2014,” UNO noted.

Leading US primary aluminium producers such as Century Aluminum, which operates three smelters, has formed a coalition to combat Chinese aluminium trade practices that they argue violate WTO rules. But UNO report says, even if the coalition succeeds in making the government impose trade restrictions on Chinese primary aluminium supply, that will not help bring a significant amount of production back to the US.