(Editor’s Note: In case you missed the previous installments of this series, check out Part 1 and Part 2.)
What About the Impact on U.S. Production?
The U.S. Department of Commerce. qingwa/Adobe Stock
First, the recommendations from the Department of Commerce apply to both primary (or upstream) and downstream production.
The upstream production refers to unwrought production, while downstream production consists of processing aluminum into semi-finished aluminum goods (such as rods, bar, sheets, plates, castings, forging and extrusions). The U.S. remains remains the second-largest aluminum producer, just behind China.
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The main objective of the actions proposed by the Department of Commerce focused on downstream production. As previously stated, the Section 232 outcome seeks to restore the industry to 80% capacity utilization.
Therefore, aluminum production could increase (at least, domestically). Increasing the domestic capacity utilization rate up to 80% would mean more aluminum will be produced and consumed domestically.
President Trump has yet to determine if all the report recommendations will be applied. MetalMiner believes that even if the quotas/tariffs implemented are lower than that indicated in the Section 232 aluminum report — meaning a lower tariff and, therefore, a reduced capacity utilization rate — aluminum products may not receive as many exemptions as steel products.
Contrary to steel, most aluminum products can be produced domestically and therefore, aluminum would potentially require fewer carve-outs than steel.
Timing becomes an issue when considering the impact of the Section 232 aluminum investigation outcome.
For the aluminum industry, restarting idled capacity takes around 9 months. After that, each smelter needs to start running toward its optimal capacity, which also takes time. Realistically it may take 12-15 months of time to reach optimal production.
Trump will need to consider that timing in his decision. Without careful consideration, reducing aluminum imports could have a negative impact for U.S. aluminum buyers in the short term.
Therefore, the president might need to take this into account and give some time for the industry to adapt to the new measures.
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Trade Wars: Hype or Reality?
We will address this issue in an upcoming post.