The Secretary of Commerce initiated an investigation to determine the effects on the national security of imports of aluminum. This investigation has been initiated under section 232 of the Trade Expansion Act of 1962, as amended. The Department of Commerce held a public hearing on the investigation on June 22, 2017 in Washington, DC at 9 am ET.
Brad Botwin: Okay we will go ahead and reconvene with our next speaker who I hope is here.
Yes come on up.
Henry Gordinier: Secretary Ross and distinguished panelists thank you for the opportunity to assist the administration in the 232 investigation on the North American aluminum industry.
My name is Henry Gordinier and I’m the Chief Executive Officer of Tri-Arrows Aluminum.
Tri-Arrows is a downstream producer of rolled aluminum sheets serving the North America beverage container and automotive markets.
We are a member of the Aluminum Association.
It’s our belief that a healthy North America aluminum industry is vital to the national security.
Our manufacturing operations is in the Commonwealth of Kentucky where we employ over 12 hundred employees at the Logan Aluminum Rolling Mill the production joint venture with Novelis Corporation.
The Commonwealth of Kentucky has more than 150 aluminum facilities from mills to makers of end user products.
And the industry employs nearly 18,000 fulltime workers.
Aluminum accounts for $2 billion in the state’s gross domestic product.
In – since 2014 Tri-Arrows has invested approximately $425 million in our manufacturing facility creating 250 high skilled manufacturing jobs.
These investments will increase our capacity by approximately 30% and expand our manufacturing capabilities to serve a wider range of products in the North American market.
Notably these investments protect a capacity needed to serve our existing customer base and support the developing automotive sheet market.
At the outset I would like (unintelligible) that Tri-Arrows supports for fair and free competition where this competition is based on cost efficiency and productivity.
Based on these measures the Logan Rolling Mill is regarded as one of the most productive mills in the world yielding a low cost position in the marketplace.
But we cannot compete on government subsidies.
Direct intervention of capital labor land raw material and basic inputs has led to massive over capacity in Chinese aluminum assets upstream and downstream.
With the Chinese over capacity we believe both our current business as well as future investments and job expansions are at risk.
Today imports of our core products are relatively small however they are growing at approximately 30% per year and we have seen forecast that show China targeting over 75% over the West Coast market.
Recently Tri-Arrows has been displaced from West Coast plants in favor of Chinese metal.
Metal cost for the Chinese manufacturers are not the same as in other market based countries.
Chinese metal is advantaged over domestic supply due to subsidized smelters unique metal index the Shanghai foreign exchange which typically trades at lower levels than the LME and export policies and terrorists which favor the export of value added materials over prime area aluminum.
Due to these advantages Chinese mills can offer fabricated products for import at extremely low prices prices that are so aggressive no Western mill would be able to generate a profit.
I can present two recent examples that illustrate where subsidized Chinese imports are impacted in the North American aluminum economy today.
These examples show that the threat of harm is shifting from conceptual to transactional.
First in a recent multi-year North American contract discussion Chinese price points were used to anchor the negotiation as the global reference point.
Leveraged in this manner the economic impact of these imports is far greater than (unintelligible) volume shift would be would indicate.
Second semi-fabricated products from China are being offered today at prices below the exchange based price for metal in the US with the intent for these products to be repurposed as raw material.
If semi-fabricated product can be sold in North America below the base price for aluminum it’s not a leak to see where this level of discount might be applied to more highly engineered products.
In conclusion Tri-Arrows seeks a level playing field in which to compete with all market participants.
As the administration centers potential trade remedies we believe that the (unintelligible) consequences can be minimized through recognizing the following.
One (unintelligible) aluminum industry is part of and dependent on a global supply chain.
The vast majority of our trading partners operate on market based principles.
Two the full aluminum value chain should be considered given the ability for policy to redirect shift values between upstream and downstream products.
And three the threat of – the threat to the North American aluminum industry extends from Chinese over capacity and non-market based trading principles.
Brad Botwin: Thank you.
The Chinese over capacity I think has of course been in existence for some time so (unintelligible) that (unintelligible) bid is substantial investments since 2014 sort of notwithstanding that.
Would you explain a little bit of rationale that led to that?
Henry Gordinier: Well there’s growth in the North American automotive sheet market so, you know, our approach has been how can we grow our business participate in growth in the North America automotive market but at the same time sustain what our core products have been and (unintelligible) customer base.
So I mean it was a targeted decision to figure out what kind of investments that we could make that would allow us to sustain what’s been a very healthy North America trading partnership and commercial relationships today.
Balance that with how we can begin to grow in the automotive.
So it’s really been how do we have a sustained North – how do we be a sustained North America provider to both markets.
Brad Botwin: Thank you.
Are there questions from the panel?
Henry Gordinier: Thank you.
Brad Botwin: We’re ready for our next speaker.
Heidi Brock: Good morning.
Thank you for the opportunity to testify at this very important hearing.
My name is Heidi Brock and I’m President and CEO of the Aluminum Association.
The Association represents the aluminum value chain.
Our membership consists of large global companies as well as small companies with a domestic or local focus.
We represent primary producers of aluminum producers of semi-fabricated products and aluminum recyclers as well as industry suppliers.
The US aluminum industry supports nearly 713,000 direct indirect and induced jobs as well as $186 billion in economic in – output more than 1% of US growth domestic products.
We are proud of the fact that this industry has committed to invest more than $2.3 billion in domestic plant expansion in the United States since 2013.
Regarding the question of whether imports threaten US national security.
We see three reasons why it is important to look at aluminum as a strategic material and the aluminum industry as highly significant in its industrial contribution to national security.
First aluminum is used in numerous national defense applications including major components of Army ground vehicles just flown by the Air Force and war ships deployed by the Navy.
Aluminum is in the most conflict raving hotspots on the globe keeping America’s service men and women safe.
This speaks to the versatility of the metal.
Aluminum is light weight corrosion resistant easily formed highly conductive non-toxic and durable.
And aluminum as a base metal can be combined with other materials to create and repurpose alloys for a wide variety of products.
For example in 1954 there were 75 unique aluminum alloys registered at the Aluminum Association.
Today there are more than 540 active alloys that exists for different applications.
For example the Army uses high strength blast resistant aluminum in its vehicles.
For the Humvees and Bradly fighting vehicles aluminum reduces weight resists rust and stands up under tough conditions.
Second aluminum is a critically important material for the nation’s infrastructure.
Aluminum products are essential for energy generation and transmission satellite communication and the construction of bridges and buildings as well as for machinery and equipment that build and maintain that infrastructure.
And third aluminum manufacturing and the products made from aluminum supports significant (unintelligible) activity that contributes to the wellbeing of Americans and fosters problem solving innovations in packaging jet planes wind turbines trucks and cars electronics among many other things.
Having an economically healthy US aluminum industry is vital for the manufacturing and defense industrial base of the United States.
As an industry we have a unified position on a set of principles that we recommend be considered in the current investigation and any recommendations that might emerge from it.
First we respectfully ask that any trade remedies should specifically address Chinese over capacity and its affects.
Second we also ask the trade remedies not impact current trading relationships between the US and critical trading partner countries which have been determined by the Department of Commerce to be operating as market economies especially Canada and the European Union.
And finally we ask that trade remedies consider the entire aluminum value chain including both primary and downstream (unintelligible) and their employees.
I mentioned at the outset that the US aluminum industry is united in recognizing Chinese over capacity as the fundamental trade issue hurting the domestic industry today.
As an association we’re working with different government agencies to address this acute and persistent problem.
We’ve supported efforts by the US trade representative to pursue bilateral discussions to raise the limit of overcapacity in China as an issue.
We raised our concerns about Chinese misclassification of fake semis to US customs and border protection and we’ve worked with colleagues in Canada the EU and other countries similarly affected by Chinese over capacity.
Ultimately our view is that the best solution for the US aluminum industry and the jobs it supports would a negotiated government to government agreement with China that results in measurable reductions in Chinese aluminum capacity.
That would address the problem directly and set the US industry both upstream and downstream on a course of expansion rather than contraction creating more jobs and more opportunities.
I’d like to thank Secretary Ross for this investigation.
Our association stands ready to assist in way possible.
Brad Botwin: Thank you.
Any questions from the panel?
Thank you so much.
We’re ready for our next speaker.
Ben Kahrs: Good morning.
My name is Ben Kahrs and I’m Senior Vice-President for Strategy Technology and Corporate Element for Alcoa.
On behalf of Alcoa Aluminum Association member we welcome the Department of Commerce for Section 232 investigation on the effectible aluminum and imports on US national security and to consider actions that we’ll address on fair trade.
Alcoa pioneered the modern aluminum industry in 1988 and has been a global leader for nearly 130 years.
Today the Alcoa is focused primarily on the upstream sector of the aluminum industry where we mine bauxite refine it into aluminum and smelt it into aluminum.
In the US we have five operating locations including two smelters and one rolling mill with three other production facilities currently curtailed.
Alcoa represents 47% of all US aluminum smelting capacity.
Aluminum is a vital component and defends applications including armored vehicles and fighter jets and while we believe that there is the ability to produce enough high purity aluminum in the US for defense applications we see a risk for national security if there is not ample access to primary aluminum in North America or from other US defense partners.
In recent years that supply has been threatened primarily due to one reason the oversupply of aluminum being produced in China.
Alcoa seeks to compete on a level playing field.
We believe that if the United States wants to ensure an ample supply of primary aluminum to help protect national security three steps should be taken.
Number one address over capacity of aluminum in China.
Two protect the US aluminum industry’s integrated critical supply chain.
And three provide a competitive environment with the US aluminum industry including regulatory reform affordable energy and critical investment.
In 2000 China produced only 10% of the global supply of primary aluminum.
Today it’s about 55%.
From 2000 until the global financial crisis China increases production year-over-year while at the same time its economy was growing at a record pace.
China was essentially consuming all the aluminum they were producing.
As China’s economy began to slow however domestic Chinese capacity began to outpace its ability to absorb all its production.
This year China’s over capacity is estimated to reach new heights.
With a surplus more than 2 million metric tons that’s just slightly below Alcoa’s total global smelting operating capacity and nearly half of all North American production in 2016.
In total Chinese domestic consumers consume roughly 30 million metric tons of primary aluminum annually.
When compared to the 2 million metric tons of excess primary production 4 million metric tons of net semi fabricated products and 9 million metric tons of curtailed capacity.
Chinese current over capacity is 15 million metric tons per year or 50% of China’s own consumption.
This is equivalent to the total direct supply from North America, South America, Europe and the Middle East combined.
We believe China is exporting its domestic problems.
China is unfairly subsidized its smelters to maintain employment and keep smelters online when they should be curtailed.
And while China’s government has committed to reducing production there’s a lack of credible data and transparency to show what actions have been taken.
We believe that unfair subsidies for Chinese smelters persists possibly in the form of tax breaks loans or lack of enforcement on policies already on the books.
The results have been a significant curtailing or shuttering of aluminum melting fast outside of China with no green field investment in the US.
Because of over production in China aluminum prices never fully recovered from the global financial crisis and remain 25% to 30% lower than before the crisis.
And the over capacity has tremendous impact on the number of aluminum plants operating and jobs here in the US.
Alcoa has closed curtailed or divested 43% of its smelting capacity and 35% of its refining capacity since 2007.
And in the US this has impacted more than 15 hundred jobs in New York, Washington, Indiana and Texas in just the last couple of years.
As such the US government should directly engage with the Chinese government to address the ongoing over capacity problem in the aluminum industry and to ensure that Chinese over production no longer spilled out into the rest of the world.
Outside of China the aluminum industry has an integrated supply chain essential to the health of the entire aluminum value chain.
Unencumbered trade flows between our vital trading partners including Canada and Europe are critical to the success of the US aluminum industry.
Alcoa’s smelters in Canada export 60% of the metal to the US serving customers in 25 states and supporting our economy through downstream jobs.
We need to protect the vital supply chain and the 160,000 jobs that depend on them in deed maintaining a diverse supply chain among long standing allies and vital trading partners bolsters our national security.
Providing a favorable business environment that allows our operations in the US to complete globally is also essential to the long-term viability of the US primary industry.
We must have efficient regulatory policies competitive energy prices and an environment that allows our plants to compete fairly.
In addition our production facilities would benefit from investment in innovative technologies in the form a public private partnership to advance our smelting industry to the next generation.
With investment at R&D; and the commercialization of technological breakthroughs we can ensure the competitiveness of existing smelters and secure jobs in the US.
In conclusion Alcoa greatly appreciates the US government’s sustained commitment to addressing the challenges facing our industry.
We look forward to the findings of Section 232 and remain committed to continued engagement on these critical issues thank you.
Brad Botwin: Thank you.
And thank you so much.
We’re ready for our next speaker.
Dan Langer: Good morning.
I’m Dan Langer with PHB Incorporated.
Thank you for the opportunity to appear on behalf of PHB Incorporated.
With facilities in Fairview and Erie, Pennsylvania our company was founded in 1906.
We be incorporated as a US based supplier of aluminum and is in die castings.
The CNC die casting machine molds and (unintelligible).
We ask that the Department consider the impact its decision will have on the entire supply chain particularly American defense suppliers using aluminum.
In (unintelligible) the company PHB has over 500 skilled employees in Northwest Pennsylvania manufacturing casting for some of the largest corporations in the United States.
Our employees make critical products for the defense automotive appliance and lighting industry among others.
Last year alone we produced more than 15 million castings and poured nearly (55) million pounds of alloy.
With over 100 years of aluminum die casting experience our company is one of the global leaders in aluminum casting.
We typically use aluminum alloys 360 380 383 and 413.
We also use zinc aluminum alloys ZA8 ZA12 and ZA27 along with number 3 zinc alloy.
As a supplier to the US military we manufacture military radio castings used by all branches of the US military and special operations around the world.
Aluminum consumers like PHB in Pennsylvania are critical to national security.
Not only are we the customers sitting in demand but we are the US suppliers helping meet the needs of our war fighters.
PHB is a critical part of this defense industry supply chain and any disruptions in our raw material can send a ripple effect throughout the military.
In fact we are already facing significant challenges ourself and imports of aluminum castings from India.
Why I know Washington focus much of its attention on excess Chinese aluminum and rightfully so.
I encourage the department to look at imports and downstream products from around the globe.
Having a strong and growing domestic aluminum supply is critical not only to national security but also to economic growth.
While PHB is not imported any aluminum directly we do purchase globally produced secondary aluminum through our domestic suppliers.
We are very concerned that restricting imports or placing tariffs on aluminum will simply lead to more castings coming into the US with foreign aluminum all duty free.
Shifting the injury to another part of the defense supply chain will not help US aluminum producers but cause all of us to lose.
We strongly urge the department to not only look at the impact of imported aluminum on national security but also on products primarily manufactured from aluminum.
Downstream suppliers like us are often family small businesses and we already face a number of challenges.
Our company continues to grow to meet the needs of our defense and other customers but we are very concerned about an increase of import castings and other aluminum containing products of India China and elsewhere.
We ask the department to take a broader look at the aluminum marketplace and not take action that will shift the injury to our industry by giving importive castings with cheap aluminum of (unintelligible).
Thank you for the opportunity to testify.
Brad Botwin: Thank you.
Are there particular types of aluminum castings from India that you’re seeing coming into the United States?
Dan Langer: Yes automotive related castings and appliance related castings is our largest competition.
Brad Botwin: Thank you.
Questions from the panel?
Thank you for testimony…
Dan Langer: Thank you.
Brad Botwin: …we’re ready for our next speaker.
Margaret Cosentino: Good morning.
My name is Margaret Cosentino I’m Vice-President for Government Affairs and Defense for Arconic.
We value that administration’s engagement with our industry and appreciate the opportunity to participate in today’s 232 hearing.
We submit that a healthy US aluminum industry enhanced our national security and its solutions identified during this investigations for all segments of the value chain including mid and downstream.
Arconic is a light weight metals manufacturer who works with our customers to sell complex engineering challenges transforming the way we fly drive build and power.
Our businesses have helped shaped the aerospace defense automotive and building industries in the days of the Wright Brothers and Henry Ford.
Today we continue to advance cutting edge technologies from metal powders to optimized for additive manufacturing to next generation automotive alloys that are significantly more formable and stronger than those used today.
Arconic is tremendously proud of our 22,750 employees in the United States.
Since 2009 we have invested more than $3 billion to modernize our US facilities adding more than 26 hundred high quality advanced manufacturing jobs.
We are an active and longstanding member of the US Aluminum Associations.
Arconic is proud to serve as a leading aluminum product’s supplier to Department of Defense programs providing engineered solutions that increase survivability reduce weight and enhance performance across air land and sea platforms.
Today Arconic aluminum (rolls flies and sails) on over 80 major defense programs of record.
Our defense solutions are produced across 45 plants in the United States.
Armored plate manufactured in Davenport, Iowa can be found on nearly every new US combat and tactical vehicle program of record.
Single piece aluminum (unintelligible) has (fortuned) Cleveland from the backbone of the F-35 Joint Strike Fighter.
The demand for aluminum on critical US military platforms is expected to grow significantly over the next five years driven by the planned ramp of programs like the JSF and Joint Light Tactical vehicle.
Demand for (unintelligible) to aluminum (unintelligible) for armored plate and marine applications is expected to triple by 2021.
We have long collaborated on research and development with the US Army Air Force Navy and Marine Corp on alloys and manufacturing processes.
For example we work with the US Air Force to dissolve next generation propulsion and air frame structural components through the metal support ability initiative.
Specific consortiums dedicated to leveraging government and industry resources to reduce costs and lead time associated with producing metallic aircraft components.
Arconic has a long history of manufacturing partnerships with the BOD including those that helped build the world’s widest aluminum rolling mill in Davenport, Iowa and the 50 kiloton press in Cleveland which produces some of the largest (unintelligible) in the world.
Through these investments we have ensured robust industrial capacity supporting military readiness and enhancing the country’s technological edge and manufacturing.
Arconic has continued to invest in these assets over the years including a recent $100 million upgrade to the Cleveland Forge and nearly $500 million in investment at Davenport.
Arconic’s defense portfolio is overwhelmingly commercial item.
This means we leverage the best of our innovation developed for commercial (unintelligible) and to meet the unique needs of the war fighter.
This means our defense products are manufactured across hundreds of commercial flow paths rather than on their own dedicated assets.
To best maintain the health of our advanced aerospace and defense product lines we rely on a strong backlog across our product portfolio to include business in automotive industrial and packaging.
This allows us to optimize mix across our plants and produce our parts in the most efficient and cost effective manner possible.
Regarding high purity aluminum.
New defense platforms have requirements that call for higher purity aluminum and legacy programs and we expect this trend to continue.
Arconic invented a refining process that produces high purity aluminum using fractional crystallization.
This is in operation today at our plant in Davenport.
Arconic aerospace and defense products account for the majority of total US demand for high purity aluminum.
Our process is reliable efficient and produces the highest level of purity.
We currently produce a significant share of our own utilization and this is an easily scalable process.
Finally US mid and downstream producers rely on primary aluminum imports.
The majority of these imports are Canadian in origin and produces factories that are part of the US defense industrial base.
Action on primary aluminum imports would do little to address global over capacity and potentially farm the US defense industrial base by disrupting the integrated North American supply chain.
In conclusion we appreciate the administration’s engagement on a topic of great importance to our industries and the US defense industrial base.
We look forward to working with the teams to ensure an outcome that supports US competitiveness and enhances our national security.
Brad Botwin: Thank you.
Margaret Cosentino: Thank you.
Brad Botwin: We’re ready for our next speaker.
Billy Hughes: Good morning.
My name is Billy Hughes and I’m a proud Veteran of the United States Military.
I worked in the aluminum industry for the past ten years.
I appreciate the opportunity to speak to you today about the importance of domestic aluminum production and the national security and why Section 232 relief is necessary for our industry.
I’ve been a Reduction Services Superintendent at Century Aluminum in Hawesville in Kentucky for the past two years.
In this role I administer activities of the pot lines as well as the cell relining.
I’m on the floor day in and day out to ensure that we produce the highest aluminum production possible.
Part of this position I worked at Alcoa in Warrick for eight years.
I was a Supervisor there and I was also hourly as a Process Control Operator.
I left there in 2015 just before the shut down.
The past ten years aluminum has been a big part of my life and the lives of my friends and family.
I’m grateful for my job at Hawesville and I’m lucky here the most just to have a job in this industry.
However I’m concerned without much needed relief this will not be the case much longer.
What was once a thriving industry has all but disappeared and my time in the industry I saw conditions and deteriorated as China expanded production and crashed prices.
That’s just one example in the industry our bonuses are often faced on the company’s performance this means that the markets started to get bad so did our bonuses.
Sometimes there were none.
Today I feel fortunate to work at Hawesville the last remaining US smelter that can make high purity aluminum.
However even this facility is at risk over the past five years.
Hawesville has issued two separate notices that would permanently shut down operations in 60 days.
Lucky for us on both occasions the smelter was able to pull its business back from the brink but not without layoffs.
In the past two years alone the facility has been force to let hundreds of workers go and has been scrapping unused machinery for cash to help us get by.
Hawesville could easily become an ex aluminum smelter to go under unless relief is granted.
I will stress that the production of high purity aluminum requires highly technical skills that are not easily replaceable.
The high purity production process is complex and leaves no room for here.
This process is part art and part science even the slightest amount of impurities can throw an entire pot off.
When these jobs go so do specialized skills needed to produce the high purity aluminum.
The domestic industry’s problems have taken its toll on its workers and families.
Many of who have lost their jobs remain unemployed to this day not a week has gone by where I don’t receive a phone call from a former colleague looking for work.
Our communities have also suffered.
Like Hawesville smelters are typically located in small family friendly towns.
When their largest employees forced to shut down and reduce jobs the whole town feels it.
As a Veteran of the US Army I know first-hand how important aluminum is to the men and women who’ve put their lives on the line for their country.
I served in both OEF and OIF following September 11.
When I first arrived to Iraq 2003 Humvees were no match with IEDs.
We were losing soldiers left and right because our vehicles had little protection from (unintelligible).
At this time members of my unit were forced to line our vehicles with scrap metals sand bangs bullet proof vests for added protection.
By the time my younger brother arrived in Iraq for 2008 conditions thankfully improved.
The Army began using high purity aluminum in its vehicles which is significantly more effective at absorbing a blast.
Only one can imagine how many US soldier’s lives are saved because of the switch.
I fully agree with Secretary Ross that the primary and high purity aluminum produced at Hawesville is a usually important thing to defense.
My fear is that if we allow enforce to continue entering the US market and harming US production and workers the invested aluminum ministry will become a thing of the past and our national security will suffer.
It is critical that we maintain the capability to produce aluminum and not a force to depend on unreliable and unsafe sources of supply to meet this need.
I don’t know how important aluminum is to protect – I know how important aluminum is to protecting our soldiers and wouldn’t want to depend on imports from the Middle East or someone else during the time of war or other national emergency.
For these reasons I ask that you grant immediate Section 232 relief for domestic aluminum industry.
On behalf of myself my colleagues and friends and family thank you for your time and attention.
Brad Botwin: Thank you for your comments.
A similar question I had for (Mr. Smith).
Can you give us a sense of the amount of time needed to get the experience to have the people like you and people who work with you and for you to do that specialized work on the pots?
Billy Hughes: I can tell you that once a smelter goes the people are going too.
Brad Botwin: Sure.
Billy Hughes: People like me are going to be looking for jobs in different industries and it’s going to be hard to come back.
It’s not going to be an easy task the restart of pot lines no matter where you go it takes a lot of technical experience.
You’re looking for guys that, you know, 10 to 20 to 30 years experience to start these pot lines.
Brad Botwin: Are there questions from the panel?
Billy Hughes: Thank you.
Brad Botwin: We’re ready for our next speaker.
Alf Barrios: Good morning.
My name is Alf Barrios I’m the Chief Executive of Rio Tinto Aluminum.
I sit on the Rio Tinto Executive Committee and serve as the company’s (unintelligible) support for Canada and the United States.
Rio Tinto appreciates this opportunity to offer comments to assist the Department of Commerce and Department of Defense in the Section 232 national security investigation of aluminum imports.
Rio Tinto commands the Trump Administration for focusing attention on the vital role that aluminum plays in defense capability.
My comments today will highlight the essential nature of aluminum in the North American integrate supply chain that is the basis of that capability.
Rio Tinto is the leading global mining and metals company that focuses on finding mining and processing essential mineral resources.
We have been in business for more than 104 years and some of our longest operating assets allocated in the United States.
One of our major products is aluminum largely produced in North America.
Rio Tinto is proud to have operations in the United States that have provided critical minerals to US customers for over 100 years.
For example the Bingham Canyon mine in Salt Lake City, Utah is a fully integrated copper gold and (unintelligible) mine and smelter that has operated for 110 years and supplies over 30% of US copper demand.
Rio Tinto is also investing for the future prioritizing new expirations in North America that will support future US manufacturing demand.
To date Rio Tinto has invested a $1.3 billion to develop the resolution copper mine in Arizona.
This mine will require $6 to $8 billion of investment to the several years and is one of the largest private investments currently pending in the US permeating process.
Rio Tinto’s operations such as those in Utah and California Arizona are strong contributors to the United States economy and employment.
In the (primary) aluminum sector Rio Tinto is a significant contributor to the integrated manufacturing supply chain in North America are the largest producer of (primary) aluminum.
Our smelters in Quebec and British Columbia have a long history of supply in the US manufacturers particularly customers in the defense sector.
In regards to the national security focus of this hearing the United States and Canada have treated each other as indispensable partners in national defense for nearly a century.
The Canadian American defense industrial alliance known as the defense production sharing program predates the US entering into the second World War.
In 1940 Canada and the United States established the (unintelligible) board on defense which still operates today.
The high (unintelligible) declaration on 1941 allows American made war material to be produced in Canada and provided to Great Britain.
Both defense coordination between the US and Canada that continues today over 20 years the US law has defined the national technology and industrial base to include Canada.
Canada was the only country to receive such treatment until Congress recently added Australia and the United Kingdom.
This long standing and deep cooperation between the United States and Canada has been recognized in prior Section 232 investigations in the recent 232 investigation the Department (has come and) recognized that quote, “Canada is largely integrated with the United States in the defense arena and is considered part of the North American industrial base and defense planning.”
Rio Tinto has tried to play a critical role in supporting the US manufacturing base 75% of Rio Tinto’s Canadian aluminum production is shipped to the US where we have sales in more than 35 states.
Among many historical examples of Rio Tinto’s operations in North America and their connection to the defense supply chain is a ship shore hydro power plant.
This plant was built in 1943 with encouragement from both the US and Canadian governments.
This (ship shore hydro power) station and the aluminum smelting operations that (Fed) proved vital in the ramp up of allied forces of allied defense manufacturing capability.
Today it is a key component of a hydroelectric power network which feeds the aluminum smelters that provide (unintelligible) aluminum supplies to North American customers.
The United States has long considered Canada’s resources and manufacturing capabilities to be a vital part of the North American defense industrial base.
Consistent with US law and policy Rio Tinto has long been a proud partner of the US government private industry and local communities.
We look forward to continuing and deepening these relationships.
Thank you for allowing me to participate today.
Brad Botwin: Thank you.
Has Rio Tinto seen any impact in its Canadian operations from the Chinese oversupply?
Alf Barrios: When we have seen in the past some impactful Canadian smelters from the Chinese oversupply and I must say that the recent statements from the Chinese government do recognize the oversupply of the aluminum sector and offer some hope.
I believe that the best (unintelligible) always is a negotiated solution but by the US with the Chinese this was why we believe it more sustainable the long-term solution which will give clarity and predictability for the industrial future and industrial investments in North America.
Brad Botwin: Thank you.
Thank you for your testimony…
Alf Barrios: Thank you.
Brad Botwin: …we’re ready for the next speaker.
Alison Keane: Good morning my name is Alison Keane and I’m the President and CEO of a flexible packaging association.
Flexible Packaging represents over $30 billion in annual sales in the US and it’s the second largest and fastest growing segment to the packaging industry.
The industry employs over 80,000 workers in the United States.
It’s produced from paper foil plastic film or any combinations of these materials.
This includes bags pouches labels liners racks (unintelligible) and other flexible products.
With respect to aluminum foil this packaging includes everyday food and beverage products such as Hershey Kisses Pringles Dannon Yogurt Capri Sun as well (unintelligible) items such as Tylenol (unintelligible) Plus Gillette Shaving and Gillette Shaving Cream.
Aluminum foil is used by the flexible packaging industry for medical device packaging as well to ensure that the product package such as absorbable sutures human tissues and artificial joints are maintained – maintained their efficacy and (unintelligible) at the time of use.
This Section 232 investigates and seeks to determine what if any affects imports that aluminum have on national security.
FTA is not aware of any impacts aluminum foil imports for the use in the packaging industry as our national security.
We support the efforts to protect domestic manufacturing and ensure national security but believe any such efforts most consider the impact and consequences on all US manufacturing sectors.
Accordingly the scope of these actions must be limited to address the specific objectives.
Aluminum foil imports should be excluded from consideration without any applications to national security.
In its investigation the administration is to consider a range of factors related to national security including the economy the effects of foreign competition on economic welfare and impacts on employment.
Any import research we believe on aluminum foil will have a significant negative impact on the flexible packaging industry and its employment in the United States.
This investigation is paralleling in international trade commission investigation of Chinese aluminum foil imports.
The petition claims that dumped and subsidized aluminum foil from China is causing our threatening injury to the domestic aluminum foil industry.
The ITC petition speaks deep import duties exceeding 140%.
The unattended consequences of potential remedies under this investigation combines with any imposed by the ITC on the ability for Flexible Packaging manufacturers to get the aluminum necessary to create innovative and functional products for food beverages candy and pharmaceuticals would be the loss of Flexible Packaging manufacturing jobs in the United States.
Aluminum foil is used by the Flexible Pack – aluminum foil that is used by the Flexible Packaging industry is simply not manufactured and the quality and quantities needed in the United States.
Failure to invest in quality losses including gage width and lack of appropriate alloys contribute to the fact that US producers of aluminum foil are not able to serve the US Flexible Packaging industry.
In fact at the ITC’s preliminary hearing on March 30 the staff found the domestic ultra-thin foil production may be limited or non-existent.
The ITC also found that despite the Aluminum Association’s arguments about economic harm by import domestic aluminum foil manufacturing jobs declined by only 137 workers from the period of 2014 to 16.
To put this on more respective again the domestic flexible packaging manufacturing jobs in the United States are over 80,000.
The negative impact on American jobs cutting off the supply of aluminum foil for flexible packaging will far outweigh any job benefits that are envisioned by the ITC or Section 232 Investigations.
High tariffs or quotas will only lead to US companies sourcing aluminum foil from other non-US manufacturers, Chinese suppliers of printed or otherwise converted aluminum foil entering the US market since these products will not be part of the action, and/or US companies moving flexible foil manufacturing outside the United States altogether.
There is simply no scenario where US aluminum foil manufacturers benefit, and in most cases US flexible packaging jobs will be lost.
FDA shares the same goals as domestic aluminum foil producers who want more American jobs.
We understand the importance of national security.
We believe that the administration should find ways to work together to improve our country’s competitiveness.
We believe that everybody loses in unfair trade cases, particularly the American consumer.
The ITC’s preliminary findings make it clear that their case is not going to result in any benefit to the aluminum foil producers.
And the unintended consequences of including aluminum foil in any remedy under this investigation will be more damaging to the US manufacturing industry and the economy than the benefits sought.
Brad Botwin: Thank you.
Thank you for your testimony.
Robert Lauterbach: Thank you to Secretary Ross’ panel for inviting me to speak today.
My name is Robert Lauterbach, and I’m the vice president of Global Sourcing at Ball Corporation.
Today I’m testifying on behalf of the Cane Manufacturer’s Institute, CMI, whose member companies including Ball Corporation produce over 90 billion aluminum beverage cans every year, create $11 billion in economic activity, and employ 10,000 individuals in 23 states.
In order to make the products that we sell, we must purchase very large quantities of aluminum can sheet and aluminum ingot.
The names of these products along with their corresponding HTS codes have been provided in our submission.
We respectfully request that Commerce exclude the aluminum products that we purchase from any upcoming trade action.
(Unintelligible) Commerce in your analysis, we offer the following reasons.
Number one, the aluminum products that we purchase do not have any defense applications.
Number two, the aluminum can sheet producers have been and continue to shift their production away from aluminum can sheet that we purchase to higher margin, higher value-added product such as those used by the automobile industry.
As such, can buyers like us are forced to qualify other sources outside the US.
This is blameless trade.
Number three, even still we purchase the vast majority of our can sheet from the US, or in the case of aluminum ingot, from longtime strategic allies such as Canada.
In fact only 1 to 2% of the aluminum products that we import into the US come from China.
Consider on the other hand the products that are being imported from China into the US in large quantities are lower value-added commodity products such as aluminum foil for food, aluminum thin stock for the HVAC industry, and building and construction aluminum.
Number four, imposing tariffs on the aluminum products that we purchase would have the unintended consequence of harming US can based manufacturers while benefiting foreign can sheet companies doing business in the US.
Let me explain.
Three of the four major suppliers of aluminum can sheet in the US are foreign owned: Novelis, Constellium and (Triarus).
We heard from them earlier.
Tariffs will raise their prices, increase their profits, but will not have – but will not make the US aluminum industry any stronger.
Number five, bauxite, the most important ore of aluminum is not mined in the US.
And because of high energy costs and low concentrations of bauxite in US soil, it will not be mined in the US even with a tariff on imported aluminum.
Number six, the importation of bauxite, alumina and aluminum products we purchase is properly characterized as blameless trade.
And it would be unfair to punish US based companies who depend on such blameless trade.
But we ask why the decline in US primary aluminum production?
It really boils down to three major reasons: high US energy prices relative to other regions, lack of investments in US smelting assets, and an exponential increase in domestic aluminum scrap availability, making the need for primary aluminum less.
Number seven, trade action proposed would likely result in the loss of high paying key manufacturing jobs and compromise the competitiveness of US downstream aluminum users.
Number eight, trade remedies would have (unintelligible) of investments on our industry.
Over the last five years alone, CMI companies have invested well over $1 billion in their US manufacturing facilities.
Even small tariffs will result in greater uncertainty about prices, supply, financing, and would dramatically curtail investment in hiring in the US.
And number nine finally, a tariff on aluminum products would have a twofold impact.
First, consumers would pay more, ultimately harming the US consumers that rely on affordable canned products.
And second, our products would be unfairly taxed, making cans less competitive when compared to competing packaging substrates such as plastic and glass.
With these concerns in mind, we would respectfully request that Commerce exempt the aluminum products that we purchase from any tariff or trade remedy.
Brad Botwin: Thank you for your comments.
We’re ready for our next speaker.
Jim McGreevy: Good morning.
My name is Jim McGreevy.
I’m the president and CEO of The Beer Institute.
Thank you for the opportunity to provide the US beer industry’s views on the Department’s investigation.
I speak on behalf of the beer industry which represents 1.9% of the nation’s gross domestic product, and the direct, indirect and induced jobs of 2.23 million Americans.
The Brewer’s Association and the American Beverage Association join us in our written comments.
A majority of the volume of beer sold in the US in packaged in aluminum cans and aluminum bottles made from aluminum can sheet.
While 98% of our can sheet is domestic, imported primary aluminum is an essential input.
Tariffs or other measures limiting the importation of primary aluminum or can sheet will hurt our economic activities and the jobs our industry supports.
Imports of primary aluminum for can sheet manufacturing do not threaten US national security.
US smelters and reliable US trading partners can satisfy the military’s demand.
The competitive challenges US smelters face are the result of factors unrelated to imports – aging facilities, high energy costs and a strong US dollar.
We urge the Secretary not to impose any tariffs or restrictions on imported can sheet, primary aluminum or ingot.
The Department has trade remedy tools they can use in a targeted manner to address unfair trade practices as it did in its recent scope determination concerning Chinese aluminum pellet, and its recently initiated investigation of aluminum foil imports from China.
We urge the Secretary to recommend the continued use of such targeted action, consistent with US trade remedy laws and regulations, and with our international commitment.
We also urge the Secretary to consider that energy costs are a key factor driving smelter competitiveness.
The US producers are at a severe energy cost disadvantage relative to their foreign competitors.
Lower energy costs help smelters and may encourage investment in the US rather than in other countries.
Today I would like to speak to another issue that should be part of the Department’s inquiry and is of great concern to the beer industry, serious irregularities in the trading of primary aluminum contract and in the storage of aluminum at warehouses approved by the London Metals Exchange.
These irregularities seriously distorted the aluminum market and cost aluminum users billions of dollars.
Aluminum producers themselves have some responsibility for current market conditions by taking incentives from London Metal Exchange warehouse owners to funnel aluminum away from the market.
Today US producers have taken production offshore by investing in building smelters who reduce their cost of production here in the US at the expense of American jobs.
In November 2014 in the Senate Permanent Subcommittee on Investigations issued a report that found “troubling issues involving conflicts of interest, market distortions and the potential to gain unfair trading advantages”, which likely added billions of dollars in costs to a wide range of aluminum users from beer makers to car manufacturers to defense companies that make warships for the Navy.
Though the London Metal Exchange enacted reforms that resulted in significant market corrections, irregularities and distortions of the market may not be over.
We’ve recently seen price movements that appear disconnected from market fundamentals.
There are two reasons I raise this.
First, as the Secretary considers whether to recommend import adjustments, keep in mind the negative impact that restrictions on supply of primary aluminum will have on our industry and that of other aluminum users.
We just exited a period when artificial restrictions in the market distorted prices and hurt aluminum users.
Import restrictions would likely have the same affect, leading to higher costs and in turn lost sales.
Second, high aluminum prices coupled with the strong US dollar make the US market attractive to global aluminum suppliers, incentivizing additional imports.
If the concern is imports of primary aluminum, it is critical to evaluate the role aluminum priced irregularities and distortions played in creating the current situation.
While imports of primary aluminum for can sheet do not threaten US national security, there are actions the Secretary should recommend to the president to facilitate a functioning aluminum market.
One, further scrutiny of aluminum priced irregularities and distortions, policy changes focused on lowering energy costs for smelters, and three, no restrictions on can sheet or its imports.
Thank you for the opportunity to appear before you today.
Brad Botwin: Thank you for your testimony.
Matt Aboud: Members of the panel, I thank you for the opportunity to speak with you today.
My name is Matt Aboud, and I am the president of Hydro Aluminum Metals USA, with offices in Baltimore, Maryland.
Hydro is a global aluminum company with production, sales and trading activities throughout the value chain.
From bauxite to alumina, energy consumption – excuse me, energy generation to the production of primary aluminum and roll products as well as recycling.
Headquartered in Norway, the company has 13,000 employees involved in activities in more than 40 countries.
In the US Hydro is a supplier of rolled aluminum and other metal products.
The company has two dedicated aluminum re-melting facilities in Henderson, Kentucky and Commerce, Texas.
In addition we operate a technology center in Zeeland, Michigan where we are conducting research to find and improve advanced solutions for aluminum and our end markets.
Hydro has serious concerns regarding the distortion of trade flows resulting from over capacities in the aluminum market caused by state interventions.
Therefore we welcome all evidence based inquiries into the current situation faced by the aluminum industry.
We agree that the crisis caused by overcapacity requires decisive government reaction.
However we are concerned that trade remedies resulting from a 232 Investigation, namely duties, tariffs and quotas do not effectively address the fundamental cause of today’s situation which is overcapacity in the primary aluminum industry stemming from practices which are not compliant with international trade law.
This coupled with the fact that the US is a deficit market and rely on imports to supply the annual demand for primary aluminum, we urge the Department great caution.
Many in this room would agree that the tools afforded to the president as a result of a 232 Investigation are from perfect or appropriate.
Unfortunately there is no substitute for free and fair trade based on a level playing field.
And it is our opinion that we shouldn’t try to distort the market back into compliance.
That being said, we are all hopeful that if the trade remedy is chosen, there will be minimal unintended consequences for the integrated US aluminum supply chain.
The aluminum industries in Europe, the US and Canada are interlinked, adding value to our societies as a whole and strengthening national security in the US Tariffs or quotas imposed on European or Canadian aluminum would therefore be examples of such unintended consequences.
Both Canada and Europe have been longstanding commercial and military partners of the US, and are characterized by strong market economies and legal systems.
The Canadian and European aluminum industries stand in fair competition to each other and to their American counterparts, and they do not pursue any unfair trading practices.
Therefore we would like to kindly request that the Department of Commerce to exclude Canadian and European imports from the scope of any potential trade remedies.
We continue to believe that the best course for our industry is to continue working with our global trading partners and national trade associations to find a negotiated solution.
The request in March of 2017 to the G20 countries from the aluminum associations of the US, Canada and Europe to handle the overcapacity is one such forum.
Another route is utilizing the WTO dispute settlement system like the US’s WTO complaint against the alleged Chinese subsidies to primary aluminum production launched on the 12th of January of this year.
The WTO dispute settlement mechanism is based on clearly defined and accepted rules, and will not cause market distortions.
While maybe not everyone in the room agrees that aluminum is a matter of national security, I think almost all would agree that a healthy and well-functioning aluminum industry is in our national best interest.
As such, we in the US must stand together with our colleagues in government and those throughout the globe who play by the rules to ensure no further harm is done to our great industry.
Thank you very much.
Brad Botwin: Thank you.
Has Hydro seen any impact in any of its operations from the Chinese overcapacity?
Matt Aboud: Major impact that Hydro has seen has been through our downstream joint venture in Sapa Extrusions.
Sapa Extrusions is the world’s largest extrusion company.
And I believe you’ll hear in just a moment from the head of the Aluminum Extruder’s Council who can comment very directly on the impact that has happened in the overcapacity on the downstream side.
But certainly there has been quite a bit of market distortion throughout the world.
Brad Botwin: Thank you.
Thank you for your testimony.
Garney Scott: Hello and thank you for the opportunity to testify before the panel.
My name is Garney Scott.
I’m the president and CEO of Scepter, Inc.
My company is primarily engaged in the recycled aluminum market.
I’m here today in my capacity as chairman of the Aluminum Association, a position I’ve been privileged to hold since October 2015.
The Aluminum Association represents the entire aluminum value chain, from primary producers to recyclers to fabricators and their suppliers.
Our members employ 161,000 workers and have manufacturing operations in 35 states, and account for 70% of the aluminum and aluminum products shipped (unintelligible) in creating $186 billion in economic activity.
The domestic industry remains a leader in innovative aluminum technologies and applications.
But it is at a juncture where we’ll either be able to take advantage of growth opportunities or will continue to be irreparably injured by unfair trade practices that undermine its ability to do so.
Our industry has been hurt, and its future is threatened by global oversupply.
More specifically the US industry is being harmed by massive Chinese overcapacity resulting from substantial subsidies by the government of China, such that China’s capacity now far exceeds its domestic demand.
China’s huge and growing aluminum oversupply has distorted the world market and adversely impacted US producers of both primary and downstream products.
Chinese oversupply has put severe downward pressure on world prices, which in turn has resulted in the shuttering of US aluminum smelters and semi fabricating facilities.
We have major concerns about China’s rapid and aggressive expansion into value added downstream products, and their history of circumvention of US duties through misclassification and/or transshipment through third countries.
To bring its production into line with domestic needs and not to export its oversupply, China needs to eliminate market distorting policies and close (unintelligible) two million metric tons of a smelter and semi-finished product annual capacity.
The trends in Chinese capacity, production and exports have enormous negative impacts on the US industry, and have adversely affected the industry that is a vital component of our US defense industrial base.
In order for the US aluminum industry to supply these defense needs and continue to provide jobs in our communities, we need to be competitive and economically healthy.
Absent actions that ensure robust and healthy commercial markets in the United States for aluminum and aluminum products, domestic producers will not be able to sustain their mills and facilities that also produce aluminum products that are vital for defense applications.
Think of it this way.
The North American aluminum producers ship about 26 billion pounds per year.
Perhaps 1 to 1.5 billion pounds of this metal is shipped for defense applications, about 5%.
There is no way to sustain a viable industry on these volumes alone, and no plant makes exclusively for military applications.
So if we do not address the Chinese overcapacity issue, our entire commercial market may not be viable to the US, and we’ll be completely at the mercy of global producers for its defense needs.
The US aluminum industry embraces competition that is fair and transparent.
We believe that it is vital to the Chinese government to address the negative effects of the long running rampant overcapacity in both the primary and downstream sectors by closing smelters and semi fabricating mills until demand can meet supply.
This includes at a minimum forcing inefficient, unpermitted and antiquated facilities to close in China.
And to pursue policies that align with its own stated sustainable development goals and eliminate Chinese subsidies and Chinese lending and other incentives that artificially support the Chinese aluminum industry and its resulting pricing practices that negatively affect world markets through its exporting of aluminum.
A 232 remedy should address the negative impacts of Chinese overcapacity in the United States and help protect an industry that is vital to the country’s national and economic security.
US border measures will not fully address the problems we face because the domestic industry competes globally and has international supply chains.
Unless a broader agreement is negotiated to reduce and eliminate the massive overcapacity in China, the negative effects will persist and continue to threaten the US industry’s long-term health and vibrancy.
Thank you to the panel.
We appreciate your focus on our industry.
Brad Botwin: Thank you.
Garney Scott: Thank you.
Steve Casey: Good morning.
I’m Steve Casey, senior director of procurement for Bemis Co., Inc.
Bemis, a manufacturing of packaging headquartered in Neenah, Wisconsin believes it has a useful perspective to provide to the Secretary of Commerce and the Department of Commerce as they develop their analysis and recommendations for the president pursuant to the Section 232 National Security Investigation of aluminum imports.
Bemis is concerned that potential measures resulting from the aluminum investigation could inadvertently have a negative impact on the supply of aluminum foil used in manufacturing flexible packaging in the United States, with potentially negative consequences for Bemis customers, competitive position and employment.
Any import restrictions on aluminum foil and especially the ultra-thin foil used in flexible packaging could negatively affect our business in the United States, given that one, there is not adequate capacity in the United States and Canada to meet our quantitative and qualitative needs, and two, our products compete with imported packaging that would not be covered by any measure impacting foil imports.
Accordingly Bemis respectfully submits that aluminum foil should be excluded from any eventual measures recommended to the president pursuant to the investigation of national security effects of aluminum imports.
Bemis manufactures packaging for the largest food, consumer products and medical device companies in the world.
Though we are not a household name, our products are found in virtually every aisle of the grocery store.
Our products keep the food you buy safe and fresh through distribution, and keep patients safe during surgery.
We have 59 facilities in 12 countries, and about 17,500 employees worldwide.
Within the United States Bemis has 31 manufacturing plants in 14 states, and almost 9,000 employees, five thousand of those in Wisconsin.
The states with the largest number of Bemis employees are Wisconsin, Indiana, Ohio and Pennsylvania.
As a core part of its packaging business, Bemis uses aluminum foil for barrier to protect the food and medical supplies that go into our packaging.
Without aluminum foil, many food and medical products would be less safe and subject to higher waste through distribution.
While Bemis sources a large percentage of its aluminum in the United States, there is only one domestic producer of converter foil, and that firm’s entire capacity is not enough to supply Bemis annual requirements.
In addition a large portion of Bemis foil requirements are for ultra-thin foil of gauges less than .0003 inches thick.
Such ultra-thin foil is used for applications like ketchup packages, cream cheese packaging, powered food and beverages, and medical device packages.
Bemis customers such as Kraft Heinz, McCormick and Becton Dickinson require this thin converter foil.
But US foil producers do not want or are unable to make gauges under 0003 inches.
As such, Bemis has been required to source this key material from offshore suppliers.
Bemis operates in a highly domestic, highly competitive domestic and international market.
Many of Bemis aluminum foil containing products compete with suppliers of packaging from outside the US.
Increased prices or quotas for aluminum foil will open the door for imports of finished packaging, resulting in loss of market share, profitability and ultimately employment.
Packaging foil is not made from military grade, high purity aluminum.
We are not aware of any significant defense production needs for aluminum packaging foil.
The only military application we have identified for aluminum packaging foil is for meals ready to eat or MREs.
However MREs are typically made with a thicker foil than Bemis uses which can be easily sourced domestically.
Finally we understand the importance of protecting domestic manufacturers in key industries.
To the extent that the Secretary and the Department are concerned about distortions in the aluminum foil market, we note the ongoing trade remedy proceedings before the Department of Commerce and the International Trade Commission provide an appropriate tool to address any needed corrections.
Those proceedings entailing thorough, factual market research and analysis are (unintelligible) stage.
Allowing the proceedings to run their course will allow consumers time to adjust.
The present Section 232 Investigation should not be used to restrict imports of aluminum foil for commercial uses, as the result would be grave economic consequences to the domestic manufacturing facilities of Bemis, other packaging producers and our customers with no increase in defense security.
I’d be happy to take your questions.
Brad Botwin: Thank you.
You did say that Bemis sources a large percentage of its aluminum in the United States, but the one supplier can’t meet all the demands or Bemis’ needs.
Then you go on to say the large portion of the ultra-thin foil is not available in the United States.
Can you give us a sense of proportion of those two categories?
Steve Casey: Yes.
So we source the vast majority of our foil that’s over 0003 domestically.
The foil that’s under 0003, we have to import the majority of that because it’s not available.
And it’s about 25 to 30% that’s above 0003 and the balance would be below 0003.
Brad Botwin: Thank you.
Any other questions?
Man: Where do you import the ultra-thin?
Steve Casey: The ultra-thin, a significant portion does come from China.
We can import from Europe as well as other Asian countries.
As the trade remedy proceedings are taking place, we have been investigating alternate sources.
And honestly we are struggling to find enough capacity to meet all of our needs outside of China.
Brad Botwin: Thank you.
We’re ready for the next speaker.
Jorge Vasquez: Good morning.
My name is (Jorge Vasquez).
I’m founder and managing director of Harbor Aluminum (unintelligible).
Harbor is an independent, privately owned research firm based in Austin, Texas that specializes in the (unintelligible) of the global aluminum industry and its various markets.
My testimony will be factual.
Over 98% of the aluminum products the US consumed in 2016 were produced here in the United States.
By aluminum products I mean mill products and castings.
Actually net US imports of aluminum products have declined in the last ten years, both in absolute and in relative terms.
This explains why net exports of aluminum products to NAFTA partners have more than tripled in the last ten years to 690,000 tons.
In fact the US is a net exporter of can sheet to the world.
Contrary to what many may imagine, the US has had for many years an aluminum trade surplus with China.
The US exports more aluminum scrap units to China than the flat rolled products the US imports from China.
Although this trade surplus still exists today, it has deteriorated in the last ten years.
US military demand for aluminum products is more than 99% sourced from US producers.
In fact domestic production is about 40 times larger than US military aluminum demand volumes.
With respect to high purity aluminum, US production is essentially three times larger than what the US military consumes every year.
Moreover existing US high purity inventories can cover almost two years of US military consumption.
What if US production of high purity aluminum would cease to exist?
Well the US military could alone produce its entire needs using fractional crystallization technology, which is readily available in the US and currently operates at commercial levels.
Has China overproduced primary aluminum and cost US smelters to close?
Honestly evidence doesn’t support this notion.
Consider these four facts.
US smelting production declined 40% by the time China sprung the aluminum production and consumption started to take off in 2002.
Average cash profit margins for smelters outside China have been higher in the last 12 years than in the prior 12 years when China’s primary aluminum production and consumption took off.
China’s total primary aluminum stocks today equate to approximately four weeks of consumption versus 30 weeks of consumption outside China.
And China doesn’t export primary aluminum.
Please note that the US primary aluminum production has been declining since 1980.
This is several decades before the Middle East and China became relevant primary aluminum producers.
The US primary aluminum production has experienced an organic, long term decline as a result of an exponential increase in domestic aluminum scrap availability, high electricity prices relative to other developing countries, lack of investment in smelting assets, and a long-term decline in aluminum consumption per capita.
Moreover this decline has been particularly driven in the last five years by a strong rally in the US dollar, which appreciated around 20% over this period.
It is technically clear to me that growing US primary aluminum imports have been a natural economic effect of the gradual long-term decline in uncompetitive US primary aluminum production, not vice versa.
Declining US primary aluminum production is part of an organic maturity process where the US economy and aluminum industry have moved away from low value, energy intensive and less competitive industrial shipments to more profitable and energy efficient sectors, just like it has happened in other developed countries like Germany, Japan and the UK.
It is my technical view that exports of value add US aluminum products like can sheet, extrusions and foil would decline in a significant way if the US were to impose any type of restriction or duty on primary aluminum that ends up impacting prices.
Lastly my analysis of physical transactions in the US is leading me to believe that an artificial increase in the Midwest premium may have artificially attracted more primary aluminum imports than otherwise may have occurred.
I can gladly share this analysis upon request.
Brad Botwin: Thank you.
Questions from the panel?
Thank you for your testimony.
Jorge Vasquez: Thank you.
Brad Botwin: Next speaker please.
(Charles Ketting): Hello.
My name is (Charles Ketting).
I’m the owner of Seeco Metals in Ft.
Seeco has been in business since 1983, and we make manufactured aluminum pellet from primary aluminum only, which is used by measured chemical companies into alloy metals.
Seeco produces aluminum products in purity grades up to 99.998% pure.
The US smelters can only produce purity as high as 99.98 which is 10% less.
And that metal is not available to Seeco from downstream producers or downstream producers.
In fact Seeco is the only approved supplier of high purity aluminum used in the domestic manufacture of titanium allows made for aerospace and military applications.
An average of 70% of our production is sold domestically, 9% is sold into China, and 20% into other foreign countries.
We buy no aluminum from China, and they sell no primary aluminum into the US.
Cost of aluminum production in the United States is higher than anywhere else in the world.
This is primarily due to the cost of energy, which is 38% of the cost of total aluminum production.
Aluminum can be produced in Canada for approximately 12 cents per pound less than in the United States because of lower power costs.
Other countries have similar advantages over us.
In the past – in the year 2000 there were 21 operating smelters in the US.
Today there are only five smelters owned by two companies, only two smelters of which are at capacity.
The average age of those smelters is 44 years versus less than ten years for those in Asia and the Middle East.
The US smelters are operating with a distinct disadvantage because of their old facilities and higher cost of electricity.
The US has a large downstream aluminum industry which is at least 10 times larger than the smelting industry, and which creates vastly greater number of jobs, and I belong to that.
It will become less competitive and lose many more jobs than the smelters currently have with higher costs imposed by any tariff.
Seeco imports high purity aluminum from over 10 suppliers across the globe.
A tariff will affect the prices of material that cannot even be produced in the United States.
The cost for aluminum in supplier and customer contracts written in the US is based on daily published indexes.
Costs move up and down with the market.
There has never been a tariff on primary aluminum in the US, and therefore contracts do not anticipate tariffs.
If a tariff is passed, it will cause havoc in the market.
For instance at Seeco we buy and sell in the same market – see the chart.
Our contracts with our suppliers and customers allow for the price of aluminum to go up and down based on the indexes.
This allows us to sign contracts as long as four years since the rise and fall of the aluminum price is covered.
We then add a fixed cost per pound to convert the aluminum to pellets.
This conversion cost covers our direct cost as well as overhead and profit.
If a tariff is imposed, Seeco would have to pay it, with no way to recoup it.
We have no way in our contract to recoup a tariff.
We would soon be bankrupt.
Margins are small in this industry, and tariffs could cause the failure of many companies such as Seeco.
In 2015 the US military used only 42,000 metric tons of high purity aluminum.
The US production capacity was 192,000 metric tons, of which 75,000 tons were idle.
In addition there were 75,000 metric tons of domestic inventory.
This equates to 4.6 times the production capacity with 1.8 times the inventory of military usage.
In conclusion, why on earth do we need any type of tariff on high purity primary aluminum?
To protect two companies currently operating in the US who have chosen to stay with outdated facilities in a country with extremely high energy costs, who have four times as much capacity as the military needs when we have 1.8 years of inventory, when a tariff would create havoc in the downstream markets causing downstream producers to be less competitive, cause bankruptcies and cause a higher loss of jobs than any tariff purports to protect.
Why do we want to protect all of this when aluminum purities are available in many contries throughout the world?
Will we no longer have allies such as Canada, the source of 63% of US aluminum imports?
Is our military all at once going to go to war with every country in the world that has aluminum producers?
I don’t think so.
I am strongly opposed to any tariff to adjust primary aluminum imports because such tariffs are totally and completely unnecessary.
Brad Botwin: Thank you for your testimony.
The high purity that Seeco produces, is that a result of Seeco’s processes, or is that really result of the high purity primary imports?
(Charles Ketting): It’s – I’m sorry, I don’t hear very well.
What did you say?
Brad Botwin: So you said that Seeco produces the highest purity aluminum.
US companies don’t produce that.
You’re importing aluminum as part of your process.
Is the high purity that you’re – that Seeco’s producing as a result of what you’re importing or a result of what Seeco does with the imported?
(Charles Ketting): It’s both.
We import the high purity aluminum that’s not available in the United States.
We can’t get the high purity that we need from the United States.
So we import it, and then we convert it.
And we also – it took us three years to develop a process that would keep the purity in that aluminum at a high level when it runs through every part of our plant without picking up any contaminants at all.
Brad Botwin: I see.
Last but not least, Mr. (Henderson).
Jeff Henderson: Good afternoon.
I am Jeff Henderson, president of the Aluminum Extruders Council, the AEC.
The AEC has over 100 US members that are manufacturers of aluminum extrusions.
Our members and their suppliers employ over 35,000 directly and nearly 100,000 indirectly, in hundreds of plants spread over 35 states.
We applaud the administration’s initiation of this investigation, as it recognizes the extreme importance of the US aluminum industry and its workers to the national security of the United States.
In this investigation, aluminum should be defined to include both primary aluminum and semi-fabricated aluminum items.
Indeed aluminum is produced on a continuum.
At one end are the producers of primary or unwrought aluminum, mainly in the form of ingot.
(unintelligible) intended almost exclusively for further processing into a semi-fabricated form such as sheet, oil, plates and extrusions, all of which fall on the other end of the production continuum.
The threshold question in this investigation is whether aluminum is critical to US national security.
The answer is yes.
Numerous finished products made with aluminum are critical to the US defense industrial base which we will address in more detail in a written submission.
Indeed not only is a thriving aluminum industry critical to our nation’s national security, certain foreign industrial policies pose a significant threat to the US aluminum industry.
This is particularly the case with China, and more recently Malaysia and Vietnam.
While aluminum’s defense applications are extremely important, protecting that segment of the market alone is not sufficient on its own to ensure the continuation of a viable US aluminum industry which is ready to meet full wartime demands.
Rather the entire US aluminum production continuum must be protected to prevent further weakening of this critical industry.
So what is required to protect the US aluminum industry?
Well first you must understand the aluminum crisis.
The crisis confronting the US aluminum industry is China, plain and simple.
As with other critical industrial sectors, China’s aluminum strategy is to continue to build production capacity and employ tens of thousands of excess workers by artificially increasing aluminum output.
China uses massive subsidies and other protectionist policies to accomplish these market distorting objectives.
Unless President Trump and this administration take decisive action and corrective action, the US aluminum industry’s ability to continue producing defense and other critical infrastructure items may be set back permanently or destroyed.
The US aluminum industry has paid the price for China’s self-interested policies, as has our national security.
Seven years ago the AEC led the charge in bringing anti-dumping and counter bailing duty cases against Chinese aluminum extrusions.
Since imposition of the orders however, the Chinese have worked overtime devising multiple trans-shipment and other evasion schemes to avoid the duties.
For example, the Chinese have greatly increased their exports of extrusions to Vietnam.
Since 2011 these exports increased by almost 4000%.
During that same period exports to the United States from Vietnam have increased by close to 8000%.
Similar trends are occurring in Malaysia and other southeast Asian countries.
China’s practices have had a devastating impact on the US aluminum industry as they have fundamentally distorted the US market.
Let me highlight how the AEC believes that the administration should address the aluminum crisis.
Key to our recommendations is that the administration must ensure that its actions do not reinforce or exacerbate the existing distorted Chinese policies.
As such, the AEC does not support the imposition of tariffs or other restrictions on the imports of primary aluminum, as that will simply support China’s aluminum policy goals, especially since China does not even export (unintelligible).
Imposing tariffs on primary aluminum would adversely impact the ability of US semi-fabricated producers including AEC’s members and their customers to compete against imports of the products from other countries including China’s transshipped semi-fabricated products.
The administration should instead seek to restore the economic viability of the US aluminum primary industry in a holistic fashion by addressing the underlying regulatory environment that has made the primary industry increasingly less competitive.
To the extent the administration determines that tariffs or other restrictions on imports of primary aluminum are necessary, it should ensure that US producers of semi-fabricated products including extrusions are not negatively impacted.
Regarding extrusions, the administration should impose duties on aluminum extrusions from countries that are allowing China to evade the Department’s orders.
Brad Botwin: Thank you for your testimony.
Well that concludes all of our scheduled speakers.
I want to thank the speakers for taking the time to come and give us their presentations, the panel members and also those of you in the audience who have attended.
Yes, and remember the comment period will remain open until tomorrow.
So if there’s some that have not yet submitted written comments for the record in this investigation, you have until tomorrow to do so.
Thank you again, and the hearing is concluded.