Aluminum producers push to form global industry group to curb ‘abundant overcapacities’
Canadian aluminum producers are pushing G20 leaders to form a global industry group to manage excess capacity of the metal amid ongoing turbulence in the industry due to U.S. import tariffs on China and sanctions on Russia’s United Company Rusal, the world’s second largest aluminum producer.
The Aluminum Association of Canada, along with similar organizations from Europe, the United States, Japan, Brazil and Mexico sent a joint letter last week pressing foreign ministers to establish a forum similar to the one created for the steel industry at the G20 summit in Hangzhou, China in 2016.
The various aluminum associations will hold a preliminary gathering in Montreal on June 4 to develop a “road map” for the proposed Global Aluminum Forum ahead of the 2018 G20 summit in Argentina.
“We are concerned about the unsustainable and steady increase of overcapacity particularly in China,” the letter states. “While efforts to curtail subsidised or illegal production in China are welcomed, recent data shows that such measures are insufficient to tackle the abundant overcapacities.”
China’s share of world aluminum production increased from 11 per cent in 2000 to 55 per cent in 2016, according to the Canadian association. Though the country consumes the vast majority of what it produces, it exports 3.5 million tonnes of aluminum each year, more than Canada’s entire annual production of 3.2 million tonnes. And China has faced allegations that subsidies to its domestic producers have suppressed global pricing.
“China keeps adding capacity year after year and they are in a surplus,” said Jean Simard, chief executive of the Canadian association. “There has to be a way between nations to circumscribe that, to make China part of a level playing field.”
But even the Global Forum on Steel Excess Capacity has struggled to address a massive oversupply of the alloy — a key frustration for U.S. President Donald Trump’s administration.
Steel production capacity eased one per cent last year due to a reduction in some Asian producers, according to the The Organisation for Economic Co-operation and Development. But supply still far exceeds demand with the global surplus in steelmaking capacity estimated to have reached around 737 million metric tonnes in 2016, the highest level in the history of the steel industry, according to the global steel forum. The surplus has been identified as a key factor in the disruption of world trade relationships.
“I don’t think they’ve been successful at all and there are all kinds of problems with these forums,” said Charles Bradford of New York-based Bradford Research. “For starters there are huge issues with defining what is and isn’t a subsidy.”
And any forum is unlikely to be successful without China’s full engagement in developing measures to tackle the problem, said Bart Melek, global head of commodity strategy at TD Securities.
“I think it’s valid to say China doesn’t respond to the same market rules as we do,” Melek said. “But without them, I don’t know how successful any of this is.”
The call for global engagement comes at a time of unprecedented volatility for the aluminum industry. U.S. sanctions on the Russian producer Rusal sent prices surging to a 6-1/2 year peak of US$2,435 on Tuesday on the London Metal Exchange, compared to $1,978 at the start of the month.
Prices for alumina and bauxite – key ingredients in the production of aluminum – were also up amid disruptions to supply sources in Brazil and questions about the future of the Rusal’s alumina refineries in Ireland and Jamaica.
Meantime, Canadian firms – which export 84 per cent of their product to the U.S. — still face the looming threat of U.S. tariffs. The U.S. has temporarily exempted Canada from levies of 25 per cent on steel and 10 per cent on aluminum until May 1, pending the outcome of the NAFTA negotiations.
As the tariffs kick in for other international producers, Canadian aluminum industry representatives met with federal officials in Ottawa last week to discuss how to prevent Canada from being used as a hub for transhipping and the circumvention of trade rules.
Illegal trans-shipping occurs when one country exports a product to a second country in order to falsify the product’s country of origin to dodge tariffs in a third country. Last month, Canada announced plans to bolster its defenses against such practices by granting extra powers to the Canada Border Services Agency.
It is also creating new industry-government committees and ushering in anti-circumvention measures that would allow officials to investigate companies trying to avoid duties by slightly modifying their products before shipping them elsewhere.
Though official estimates indicate China accounts for only a small percentage of steel and aluminum imports into the United States – U.S. officials have insisted the figure is much higher due to the widespread use of these practices.
“The exemption from the U.S. tariffs is predicated not just on NAFTA but on our ability to watch America’s back and prevent transhipped metal from entering the United States through our borders,” Simard said. “We cannot expose ourselves to one single case because it sends the wrong signal.”
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With files from Thomson Reuters