Aluminum smelting in the USA: does anyone really care?

Is the U.S. about to lose yet another vital industry?

Alcoa, the largest U.S. aluminum producer, announced it will cut smelting capacity by over 500,000 tons and Century Aluminum has also announced cuts at its Sebree smelter. The aluminum industry is experiencing a significant price decline to the lowest level since 2009–an impact on Alcoa’s earnings, which have dropped 30% this year. As I’m writing this, Alcoa’s stock price is tumbling.

China accounts for half of the world’s aluminum output and is on pace to export record amounts of metal products this year, helping to deepen a worldwide glut of aluminum according to Bloomberg business. The increasing inventories of aluminum, combined with the lowest price since 2009, has driven many producers to idle capacity and consider exiting the industry. According to David Wilson, an analyst at Citigroup Inc. in London, “the aluminum price is going to be pretty horrible for a while, until we see some western world production cuts.” China’s slowdown in economic activity, combined with its desire to export by eliminating export duties on aluminum, will only make the problem worse.

No doubt companies like Alcoa are considering new strategies to curtail primary metal production and invest in specialty metal components, like developing a line of powdered metals made specifically for 3D-printing applications. Having worked extensively in the aluminum industry, I know the complexity, cost and processes in this industry and the difficulty U.S. buyers have in justifying “buying U.S.” when China export prices are so much lower. On the other hand, mining bauxite, smelting and rolling aluminum has a big impact on our economy; the U.S. aluminum industry generates more than $65 billion a year in direct economic impact. When all suppliers and related business functions are taken into account, the industry drives $152 billion in economic impact—nearly 1% of GDP according to the Aluminum Association. Long term, if capacity is significantly reduced, industries like aerospace, automotive, machine tools and appliances will all suffer from availability and pricing.

Once aluminum capacity is mothballed or idled, it will be difficult to bring these facilities back to operating condition. While we are enjoying record low prices now, we will likely pay the price in the long run.

Is the aluminum industry him following the same path as the U.S. steel industry?

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