On Friday morning, a truck hauled out of a shipping yard at Sotrem-Maltech in Saguenay, Que. packed with specialty aluminum ingots bound for a foundry in the Midwestern United States. There, they were slated to be transformed into complex parts used in the manufacture of U.S. military vehicles, including four-wheel drive trucks and carriers.
It was a typical order for the company, but one that happened to take place less than 24 hours after the United States imposed sweeping tariffs of 10 per cent on Canadian aluminum — all on grounds of national security.
“Nothing much has changed for us, no,” said Patrick Dube, commercial director for Sotrem-Maltech, which also makes aluminum granules for coatings on U.S. aircraft carriers. “There are very few companies who do what we do and they are all at full capacity. The only change is that it will cost 10 per cent more. And we don’t know who will pay for that, the customers or us.”
“There are very few companies who do what we do and they are all at full capacity. The only change is that it will cost 10 per cent more. And we don’t know who will pay for that, the customers or us.”
Following decades of specialization and a steep decline in U.S. smelting capacity, analysts say the U.S. tariffs are unlikely to deliver a blow to Canadian aluminum producers, who supply 47 per cent of the aluminum consumed in the United States. However, the levies have raised concerns about rising costs for U.S. manufacturers and downstream producers — the foundries and rolling facilities that now account for 97 per cent of employment in the U.S. Industry.
“There’s no way the U.S. is or can be self-sufficient in aluminum,” said John Tumazos a New Jersey based steel and aluminum industry analyst. “That day is gone. The U.S. needs Canadian product there.”
Though the United States consumes 5.5 million tonnes of aluminum each year, its smelters produce just 700,000 tonnes. That shortfall is largely covered by Canada, which ships 2.8 million tonnes of the metal – or 87 per cent of its annual domestic production — from facilities located primarily in Quebec and British Columbia.
And though U.S. President Donald Trump has cited the tariffs as a way to revive employment, analysts say decades of downsizing among primary aluminum producers have left the country with limited capacity to resurrect.
Since 2007, the number of operational smelters in the U.S. has shrunk from 18 to 5, according to the U.S. Aluminum Association, which represents most American-based producers. That’s in part due to the high cost of operating in U.S. currency and the difficulties of competing with producers in Quebec, who benefit from access to cheap hydroelectricity.
Reviving idled smelters to full production in the United States would be a costly exercise, one that would take years to accomplish, analysts say. And even then, production would rise to a maximum of 2 million tonnes, well short of satisfying the country’s appetite for aluminum.
“They’ve undone so much capacity and restarting that is not cost effective,” said Benjamin Reitzes, Canadian rates and macro strategist at the Bank of Montreal.“The likely impact will be on prices as much as anything else.”
Concerned about the impact on aluminum costs which have already hit record highs this year, the U.S. Aluminum Association has called for quota and tariff-free trade with all market-based economies.
“We do have concerns that we don’t have much of a smelter base in the U.S. anymore,” said Matt Meenan, senior director of public affairs, for the association. “That is a problem. We’re just not sure tariffs are the way to go about tackling that problem.”
Given the U.S. has already slapped tariffs on suppliers from the Middle East and is slated to impose sanction on Russia’s largest aluminum producer, United Company Rusal, Trump’s tariffs could create a supply shortage that would paradoxically make Chinese imports more competitive in the United States, the U.S association has warned.
China has been blamed for flooding global markets with excess steel and aluminum and has faced allegations that subsidies to its domestic producers have suppressed global pricing.
Days after the U.S. imposed tariffs on Canadian steel and aluminum, raising fears of a trade war, aluminum associations from Europe, the United States, Japan, Brazil and Mexico gathered Monday in Montreal to establish a “road map” for a forum on Chinese overcapacity similar to the one created for the steel industry at the G20 summit in Hangzhou, China in 2016.
Meantime, Dube of Sotrem-Maltech is left wondering exactly how the tariffs will be imposed and who will be on the hook.
“Does my customer pay? Do I? Who collects it? There is no clarity and I worry that without clarity, someone will take advantage.”