US Industry Lays Out Concerns, Solutions for Aluminum Glut

Several representatives of the U.S. aluminum industry described a suspected trend whereby Chinese companies apparently export fake semi-fabricated aluminum products to countries including Vietnam, Mexico, or the U.S., then turn those goods into a raw “primary” product. “Fake semis” produced in China circumvent China’s 15-percent duty on primary aluminum exports while garnering a 13-percent value-added tax (VAT) rebate. As these products flood regional markets, producers scatter their goods more widely, Hydro Aluminum Metals USA President Matt Aboud said during hearing testimony. “As such, the world is awash in unneeded primary aluminum,” resulting in slumping primary aluminum prices, which are set by the London Metal Exchange, he said.

The ITC and Commerce Department in April started a sunset review to consider revoking AD and CV duty orders on aluminum extrusions from China (see 1602290011). An order will be revoked unless Commerce finds that revocation would lead to a continuation or recurrence of dumping or illegal subsidization, and the International Trade Commission finds that revocation would result in continuation or recurrence of material injury to a U.S. industry. Those reviews typically take about 360 days to complete. Aluminum Extrusions Fair Trade Committee President Jeff Henderson alluded to that review, telling the ITC that U.S. industry is still susceptible to injury from imports of Chinese aluminum extrusions. “It’s fair to say that that order saved the extrusion industry, which has been very vulnerable, and continues to be vulnerable going forward,” he said.

Executives at downstream aluminum producers such as O’Neal Industries Chief Operating Officer Holman Head and Alcoa Cast Products President Tim Reyes at the ITC advocated a more varied approach to curbing impacts of aluminum’s oversupply. Head said the U.S. should declare the Chinese government as a currency manipulator pursuant to the Trade Facilitation and Trade Enforcement Act (TFTEA), stand firm against Chinese calls for a “market economy” designation for AD/CVD purposes, engage in multilateral forums, and if duties are needed, discourage AD/CV evasion by expanding tariffs to other aluminum-containing products, instead of limiting their scope to extrusions. Under the TFTEA, currency manipulators found to harm the U.S. would not be allowed to compete for U.S. federal procurements, among other consequences (see 1602240071).

Reyes during testimony called on China to implement its 2013 State Council plans to reduce overcapacity in the aluminum sector, including removing local production incentives and developing global markets for Chinese products, and said U.S. and WTO trade remedies should be used only as a last result. Ohers who testified believe the government of China is offering tax breaks, low-interest loans, and subsidies for energy intensively required for aluminum production, to boost aluminum production in the country. During a visit with colleagues to a new aluminum smelter in China, Futura Industries Corporation President Susan Johnson asked plant employees how long it would take the company to profit enough to cover facility costs. “They looked at me and said, ‘We don’t care about cost; we care about market share,’” Johnson said. “We kind of looked at each other, the people at my company, like, ‘Oh brother, this is going to get bad.’”

China Nonferrous Metals Industry Association Vice Chairman Xianjun Wen, the final speaker during the 10-hour ITC hearing, defended Chinese policies toward aluminum overcapacity, and noted the issue partly stems from a lower per-capita demand for the metal in China than for other major countries. Speaking through a translator, Wen said his government’s 13-percent VAT rebate on non-primary aluminum exports aligns with WTO rules, and said eliminating it would be unfair to exporting Chinese businesses and would violate international trade rules. Wen also countered other testifiers’ claims of Chinese exports of fake semi-fabricated goods, saying World Customs Organization classification rules safeguard against any foul play in this regard. “Claims that some products are exported in disguise do not hold ground,” Wen said. “I’ve never seen any evidence that the Chinese exports ‘in disguise’ [violate] any regulation or rules of the destination country.”

Wen added that lower world aluminum prices stem from technological advancements and greater energy efficiency at Chinese facilities. He called China’s aluminum overcapacity “temporary,” and said the government is “fully capable” of addressing the issue, adding that production has recently ramped up because of “years of investment” in the country’s aluminum sector, despite the nation’s slowing GDP. He assured hearing attendees that aluminum investments in China decreased by about 17.8 percent in 2014, then by 10 percent in 2015. But ITC Vice Chairman David Johanson noted that U.S. consumption of aluminum has grown minimally in recent years, adding that companies are concerned because aluminum production in China “seems to” have outpaced consumption.

Better defining “overcapacity” in multilateral forums like the Organization for Economic Cooperation and Development could help countries cooperate in tackling the issue, said Anton Bazulev, an adviser for private Russian aluminum firm UC Rusal. Currently, “overcapacity” is either defined as on a “capacity per consumption” basis, or is defined according to the ratio of current price to cost of production, he said.

Trade enforcement proponent Sen. Ron Wyden, D-Ore., submitted testimony (here) to the ITC saying China’s subsidies and industrial policies skew global markets and hurt U.S. jobs. He called on the Obama Administration to use recently passed legislation to benefit U.S. industry, including the ENFORCE Act portion of TFTEA. “It is critical that our trade enforcers use every tool to tackle these serious challenges for workers and companies in all sectors of the industry – including the ENFORCE Act, the Leveling the Playing Field Act provisions, and the other measures my colleagues and I on the Finance Committee fought to get signed into law over the last year,” he said in a statement.