The US aluminum industry wants the Obama administration to challenge the trade practices of China, arguing that the Asian economic giant is violating international rules that are fueling the glut of cheap Chinese aluminum exports and affecting the value of the metal in the world market.
Two groups are pressing on the US government to question China’s trade practices. One of them is a group backed by the United Steelworkers Union comprised of aluminum workers and Century Aluminum, the second largest producer of raw metal in the US. The said group even sent a team of researchers to China in 2015 to look deeper into the news of government subsidies for aluminum makers.
The group said it has evidence proving that the Chinese government has been providing subsidies in the amount of billions of US dollars to some aluminum companies, plus access to low-interest loans.
It plans to present its findings to trade officials in the US in the next couple of months with the hope of taking the grievance to the World Trade Organization, of which China is a member.
The second group is called the Aluminum Association and backed by industry giant Alcoa, the largest raw aluminum producer in the United States. The group is also making the same claims, pushing US authorities to talk to their Chinese counterparts and rein in subsidized production.
The move is seen as an attempt by the US aluminum sector to boost the declining price of the metal and protect the interests of the industry. The aluminum industry is a vital component of the US economy, generating more than $65 billion a year and employing around 55,000 workers. Adding up all indirect economic benefits, nearly 700,000 people and some $152 billion can be traced back to the production of the metal.
The industry has been hurt by various factors like tax rebates, lax regulatory environments, and cheap energy prices. In response, the industry has been sharply cutting back output in hopes of lowering the supply and making it balanced with the global demand. The latest move to pressure the Obama administration to question China’s trade practices, industry players hope, can give US aluminum industry a boost.
Elsewhere in the world, other aluminum producers have been cutting down production to balance the aluminum market and raise the metal’s value.
Russian behemoth United Co Rusal PLC, one of the biggest aluminum producers in the world, has signified interest to cut 200,000 tons of annual output in 2016 according to its deputy chief executive Oleg Mukhamedshin.
The US aluminum industry has been facing stiff competition from China which accounted for more than half of the global aluminum production according to the US Geological Survey. This is up from the nearly 25 percent hold that the Chinese had in the market a decade ago.
The US is also the biggest buyer of aluminum from China. Last year, Chinese imports accounted for nearly 40 percent of the US consumption. This has been a significant increase from the 14 percent recorded in 2010, according to the USGS.
The increasing global market share of China and its effect on aluminum prices were vital to prompting Alcoa, the top aluminum maker in the US, to split into two. Alcoa, the company that practically built the modern aluminum industry, plans to spin off more profitable divisions during the second half of the year.
Production of aluminum in China has also surged, with USGS estimates placing the gain to be at 31 percent in 2015 compared to the previous year. This torrid growth has been fueled by emerging giants like China Honggiao Group, Ltd. which has emerged as the biggest aluminum producer in the world. The Hong Kong-listed firm has surpassed Rusal as the biggest maker of aluminum.
Chinese smelters can offer low international prices partly due to the government support they’re getting, observers say. Chinese aluminum producers often get opaque tax credits or cheap loans given to them by the local government on the condition that they sustain production and staffing levels.
While China’s producers have also closed 3 million tons of capacity since 2010, the country has also added another 1 7 million tons worth of capacity. Oversupply of the metal has affected aluminum’s value in the market.
The US aluminum industry believes it can still reverse the downward trend in the sector. Alcoa even projects that there will be a deficit in the global market this year, at around 1.2 million tons with China’s surplus of 816,000 tons unable to keep up with the 2 million ton demand worldwide.
It remains to be seen how the US aluminum industry’s latest attempt to turn back the fortunes of the metal will fare, but credit industry leaders for standing up to the increasing competition it is getting from China.