Alf Barrios of Rio Tinto says that Canada’s aluminum industry provides a safe, secure source of the metal for U.S. auto makers and other manufacturers.JENNIFER ROBERTS
Aluminum, one of the world's more mundane metals, has suddenly turned into a dramatic case study in how global trade tensions can cast clouds of uncertainty over a swath of the Canadian economy.
Part of the challenge to Canadian manufacturers of the metal is nothing new. It consists of a seemingly endless wave of low-cost aluminum from Chinese smelters. Over the past decade, the Asian giant's surging production has clobbered competitors around the world and dragged down prices of the metal by nearly a third.
But now, the relentless rise of Chinese aluminum is being met by a surge of protectionism, particularly in the United States. The Obama administration filed a complaint in January with the World Trade Organization, alleging that Beijing unfairly subsidizes its aluminum industry with artificially cheap energy as well as state-directed loans at bargain-basement prices.
In March, an international assortment of industry groups fired off letters to global leaders, including Justin Trudeau, urging them to take action at the G20 summit in Hamburg, Germany, in July. "The enormous excess capacity in China … not only significantly distorts international trade flows affecting all our countries but also undermines global stability," asserts the letter from chiefs of aluminum industry associations in Canada, Europe and the United States.
Canada has a rather large dog in this fight. The domestic industry, dominated by Rio Tinto, Alcoa and Aluminerie Alouette, employs more than 9,000 workers. The industry looms especially large in Quebec, but also has a sizable footprint in places like Kitimat, B.C., where Rio Tinto has operated a smelter for more than 60 years.
But what should the Canadian industry do? It occupies a vulnerable position in that roughly 80 per cent of its production heads south into the United States, much of it to auto plants that are using rapidly increasing amounts of aluminum in new generations of vehicles. As much as Canadian producers might welcome relief from Chinese competition, they have to guard against inciting U.S. protectionism that might result in barriers being erected against Canadian imports, too.
Alf Barrios, the Montreal-based chief executive of Rio Tinto's global aluminum operations, makes the point that Canada's large aluminum industry provides a safe, secure source of the metal for U.S. auto makers and other manufacturers.
By his calculation, about 150,000 manufacturing jobs in the United States depend on imported Canadian aluminum. "Few people realize how connected and complementary the industries have become," he says. "Both economies are very, very interlinked in terms of aluminum."
It's a good point. Among other virtues, Canadian aluminum boasts an exceptionally small carbon footprint, because the industry relies on hydroelectric power rather than the coal-fired smelters that are more typical in China. That, plus competitive pricing, makes it an attractive buy for U.S. car makers.
Mr. Barrios argues that the U.S. aluminum industry, which has been decimated in recent years by falling prices, would not necessarily gain back jobs by barring Canadian imports because U.S. producers lack access to Canada's low-cost sources of electric power – a key ingredient in making aluminum.
That seems a more debatable proposition. But it takes a brave observer to try to guess which way trade policy will lurch next under the Trump administration. At the very least, the fraying tempers in the aluminum industry demonstrate why Donald Trump's America-first message resonates so loudly in parts of the rust belt.
Over the past 15 years, China's aluminum production has swelled ten-fold, according to Citigroup. The country now produces slightly more than half of global output. If its current expansion pace were to continue, it would grab what remains of the world market over the next few years.
At the same time as China's output has been soaring, the United States has been bleeding jobs in alumina refining and primary aluminum production. The Aluminum Association estimates that employment in those sectors tumbled 58 per cent, from 12,787 to 5,379, between 2013 and 2016.
Surging Chinese exports and mounting U.S. job losses add up to a potentially explosive combination for Canadian producers who are caught between the two giants.
Canada now supplies 55 per cent of U.S. aluminum imports, according to Citi. Whether that figure surges, plunges or plateaus will hinge on how trade tensions sort themselves out over the months ahead.
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