By Bob Tita 

U.S. makers of aluminum and steel hope tariffs under consideration by the Trump administration will heat up demand for their products.

But steep duties and quotas could also hurt a U.S. manufacturing sector that has become dependent on imported metal, without helping operators of aluminum overcome high hurdles to domestic production.

The U.S. remains an expensive place to make steel and aluminum. And while U.S. steelmaking has rebounded somewhat with an improving U.S. economy, aluminum-smelting capacity remains severely diminished.

About 15 aluminum smelters have closed since 2000. Most of those plants were demolished. Only two U.S. aluminum smelters are running at full speed. Three others are partially operating.

"The U.S. stopped being a great aluminum producer a number of years ago, " said Eoin Dinsmore, head of aluminum analysis for CRU International Ltd.

Commerce Secretary Wilbur Ross on Friday released a menu of protectionist measures that he said President Donald Trump should consider to maintain the U.S.'s capacity to make steel and aluminum for national defense. The options run from blanket tariffs of 7.7% on all imported aluminum and a 24% duty on imported steel to a combination of tariffs for specific countries and import quotas for the rest of the world. Mr. Trump is due to make a decision by April.

News of the possible tariffs sent stocks in steel and aluminum producers soaring. Nucor Corp., the largest U.S. steelmaker by sales, rose almost 5%, and United States Steel Corp. and AK Steel Holding Corp. gained more than 10%. Aluminum stock reaction was more muted, with market leader Alcoa Corp. up almost 3% and Century Aluminum Co. rising 8%.

Alcoa said Commerce's options for across-the-board duties and import quotas could affect aluminum shipments from Canada, where the company operates three smelters. "The remedy should focus on the key issue of Chinese overcapacity and not penalize nations that abide by the rules," the company said.

U.S. steel companies have lobbied for such measures for years. They blame rising imports sold in the U.S. at prices they say are unfair for idling American mills. The steelmakers have pledged to increase investments in domestic mills if imports of cheap steel are curtailed.

"We stand ready to assist the administration in evaluating which recommendations will have the greatest impact in stopping the flow of unfairly traded imports," Nucor Chief Executive John Ferriola said.

But tariffs won't protect the industry from weakening demand. Many manufacturers say higher steel prices would be a disincentive to making things in the U.S. "If there's a supply response, then the market just weakens again," said Seth Rosenfeld, an analyst for Jefferies.

For the aluminum industry, analysts say the duties are unlikely to fully compensate for chronic challenges including rising electricity costs. Last year, 4.8 million metric tons of raw aluminum were imported to the U.S. to make everything from car hoods to foil. Just 741,000 tons were made in domestic smelters, down 9.5% from 2016, according to the Aluminum Association. As smelter-made aluminum shrinks in the U.S., new domestic aluminum is increasingly being made from recycled scrap. Nearly half of the new aluminum consumed in the U.S. annually is made from scrap, said consultancy Harbor Aluminum Intelligence

"There are a few locations that can restart," said Lloyd O'Carroll, an aluminum industry analyst in Virginia. "Most of them will not come back because of the power prices."

Electricity costs for smelters in the U.S. have fallen by more than 20% since 2013 and now rank in the middle of the pack among major aluminum-producing countries, according to CRU. But the amount of electricity used by U.S. smelters to produce a ton of aluminum is among the highest in the world, a reflection of the age and inefficiency of the equipment they use, said consultancy Harbor Aluminum.

Alcoa and Century Aluminum, the two companies operating smelters in the U.S., have also opened smelters in other countries in recent years that provide raw aluminum to the U.S. market.

"The report demonstrates this administration's clear recognition that swift action is required to stop the surge of aluminum imports from destroying our industry," said Michael Bless, CEO of Century, which has been leading proponent of tariffs.

While two of the options that Mr. Ross laid out -- across-the-board tariffs and across-the-board quotas -- would hit all exporters equally, a third would be a more targeted approach aimed at China and countries suspected of re-exporting cheap Chinese aluminum to avoid existing tariffs. That plan would impose a tariff of more than 20% on products from China, Hong Kong, Russia, Venezuela and Vietnam, and then impose quotas on all other countries limiting their exports to 2017 levels.

Alcoa plans to restart a smelter in southern Indiana by the middle of this year, but it is also demolishing a long-idle smelter near Austin, Texas.

Other smelters face steep challenges to firing up production again, even if tariffs are implemented.

In southeast Missouri, a smelter purchased in 2016 by Switzerland-based ARG International AG remains idle, pending the outcome of negotiations for an electric supply contract between ARG and utility company Ameren Missouri.

An Ameren spokesman said the talks, which began last spring, are continuing. ARG didn't respond to requests for comments.

When the 47-year-old smelter operates, it is the largest single user of electricity in Missouri. Legislators last year passed a bill authorizing Missouri's Public Service Commission to approve a special low electricity rate for the smelter.

When the 47-year-old smelter operates, it is the largest user of electricity in Missouri. Legislators last year passed a bill authorizing Missouri's Public Service Commission to approve a special low electricity rate for the smelter.

"That's what gives us hope that the restart could still happen," said New Madrid City Administrator Richard McGill.

--Jacob M. Schlesinger contributed to this article.

Write to Bob Tita at robert.tita@wsj.com

 

(END) Dow Jones Newswires

February 17, 2018 11:15 ET (16:15 GMT)

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