By Bob Tita
Aluminum customers are receiving tariff exclusions on billions of pounds of imported metal that U.S. mills say are undermining the domestic market the duties were supposed to revive.
The 10% duty on foreign-made aluminum that the Trump administration imposed in March 2018 allowed importers to receive exclusions from the tariff for metal that wasn't available domestically. But aluminum producers in the U.S. say the exclusion process is incentivizing more imports, deepening a divide in the industry over the tariff's effectiveness.
"The exclusion process has gotten out of control," said Jean-Marc Germain, chief executive of Paris-based aluminum producer Constellium SE, which operates five mills in the U.S. that account for 40% of its sales. "It's being used as leverage in the domestic aluminum industry. We're getting squeezed."
The Commerce Department has issued import exclusions for 7.6 billion pounds of aluminum this year through early June, after excluding 10.7 billion pounds for all of 2019, according to the Arlington, Va.-based Aluminum Association, a trade group. The group opposes the tariff because it says duties are ineffective against cheap exports from China that have caused a global aluminum glut. The association has urged the Commerce Department to stop issuing tariff exclusions for imports from China.
"Exclusions are only granted in cases where no U.S. producer demonstrates the ability to provide the requested product," a Commerce Department spokesman said. The department has initiated a review of the exclusion process.
The Aluminum Association said rising tariff exclusions are helping to drive import volumes higher for products that were previously supplied almost entirely by domestic mills. Can-sheet imports increased to 403 million pounds last year from 188 million in 2018, said the association, citing Commerce Department import totals. Imports of foil and other aluminum products also increased.
Constellium and other rollers of aluminum products say the tariff waivers are enabling their customers, particularly beverage-can makers, to shift purchases abroad if they aren't granted price cuts or more favorable contract terms.
Prices for can sheet have crept up this year to 37 cents to 38 cents a pound above the cost of raw aluminum from 35.5 cents in 2019, market forecaster CRU Group estimates. CRU said mills have restrained price increases, despite rising demand.
Ball Corp., the largest U.S. maker of aluminum cans by sales, says rolling mills haven't kept up with rising demand for cans.
"No company has added any significant domestic capacity since the tariff went into effect," Ball said in comments to the Commerce Department this month about suggested changes to the exclusion process.
Chicago-based can maker Ardagh Metal Packaging USA Inc. said in comments to the Commerce Department that domestic rolling mills' assurances about adequate production capacity are disingenuous.
"Aluminum can sheet must be imported from foreign suppliers," Ardagh said.
Ball said its production was 4% higher in the first quarter than a year earlier because of rising demand for canned beverages. As the coronavirus pandemic limits activity at bars and restaurants, consumption of canned beer and soda at home has increased, the company said.
Colorado-based Ball, which makes 100 billion cans annually, is adding capacity to plants in Georgia and Texas and intends to build new plants in Arizona, Georgia and in the Northeast to meet demand for unconventional can sizes. Popular energy drinks and spiked seltzer water require different coils of aluminum that aren't always available in the U.S.
Constellium said it can accommodate can makers' higher volumes after investing $1.8 billion in its U.S. plants over the last five years to prepare for growth. Other rolling companies also said they have capacity for more can-sheet orders.
Some U.S. aluminum rollers are switching back to producing more can sheet this year after demand dropped for the higher-margin aluminum they make for automotive bodies. Car makers and other big manufacturers have cut production because of operational hurdles and the wider economic malaise resulting from the coronavirus pandemic. Industrywide domestic shipments of can sheet in May and June increased by 6% and 6.5%, respectively, from last year.
Rolling mills and the Aluminum Association say can manufacturers are flooding the Commerce Department with duplicate exclusion requests to increase their odds of getting some of them approved and bogging down the mills with paperwork needed to object to the requests.
Can manufacturers say that because the Commerce Department's waivers expire after a year, they have to request exclusions repeatedly to insure they have enough aluminum for customers with multiyear contracts.
The U.S. agency also requires separate exclusions for slight variations in the variety or size of imports. The monthslong review process, a lengthy rebuttal process and the coronavirus all make it necessary to file exclusion requests frequently, can makers said.
"The need to file year round is even more pronounced due to the Covid-19 pandemic and the uncertainty it has caused around supply and demand," Ball said.
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