Canada’s Aluminum Valley firms concerned over NAFTA negotiations and US tariffs

Canada’s Aluminum Valley or the heart of the aluminium industry lies along a 50-mile stretch of the Saguenay River in the region of Saguenay—Lac-Saint-Jean, a two-hour drive north of Quebec City. The five aluminium smelters operating in the region account for 50% of Canada’s aluminium production.

The residents in this region, who have been directly or indirectly dependent upon the aluminium sector has been following the negotiations between Canada and the United States over a new North American Free Trade Agreement (NAFTA) very closely. The hope the agreement will clear the way towards lifting the US tariffs imposed upon steel and aluminium imported from Canada. 

Canada is the world’s third-largest producer of aluminium, mostly benefitted by the availability of hydroelectric power and supplies 60% of total US aluminium import making it more exposed to the new U.S. 10 per cent tariff on aluminium. The first aluminium smelter opened in Saguenay region in 1926 was built by Americans from the hydroelectricity produced from the river. The adjoining company town was named Arvida, after industrialist Arthur Vining Davis.

“The situation with President Trump has recently brought uncertainty to the region,”said Alain Gagnon, who started as a machine operator in 1983 and is now president of the National Syndicate of Aluminum Workers of Arvida.

This region’s five smelters owned by the multinational Rio Tinto, produced 1.2 million tons of primary aluminium in 2017 and exported 80 percent to the United States.

Rio Tinto employs 4,000 people in the area and has not done any layoffs due to tariff, but workers feel nervous looking at the situation.

According to Jean Simard, president of the trade group the Aluminum Association of Canada, the answer is not in the short term. U.S. manufacturers depend on imported aluminium and about 60% of it is supplied by Canada.  

 “They've developed a world-class downstream industry with 160,000 jobs,” he observed, “processing it to make cars, planes, building and construction components.”

Rio Tinto’s US customers are paying the cost of the tariffs. But the cluster of smaller businesses in the Saguenay area doing further work on the aluminium before it’s exported don’t have the leverage to ask buyers to adjust the price hike due to tax. Rio Tinto transports raw material and finished ingots to and from its five smelters in the region by train.

“We buy full raw ingots, full-sized slabs from Rio Tinto,” explained Simon Holsgrove, head of sales for PCP Aluminum. “As we move down the line, they get cut into plates and moved into a milling process.” However, this sort of processing is also done in the United States, according to PCP’s President Michel Lavoie.

“We have many competitors in the U.S.” Lavoie said. “That's why I can't push 10 percent more to my customer and think that we will be competitive with that.”

Most of PCP’s clients are in the US, and the company is paying the tariffs itself to continue selling to them. He like any other firms in Saguenay are waiting for a positive negotiation on the tariffs.

Marlène Deveaux, president of the Aluminium Valley Society and head of her family-owned business concerns over the tariffs. According to her, both the trade dynamics as well as the normal communications between the two countries have been changed by the tariffs. She came to know that her US customers may be switching to a U.S. supplier out of national pride despite her cost advantage. The tariffs have infused enmity between the two countries that used to be the perfect trade partners.