By Bob Tita 

In an industry hollowed out by decades of foreign competition and plant closings, a little-known aluminum maker became the leading advocate for tariffs that most of its competitors didn't want.

Century Aluminum Co. emerged as the de facto face of the U.S. aluminum industry when President Donald Trump invited Chief Executive Michael Bless to the White House earlier this month to discuss his tariff plans, rather than leaders of larger firms with plants in the U.S.

The president's 10% tariff on imported aluminum, which takes effect Friday, validated the years that Century executives spent lobbying for trade protections despite opposition from larger rival Alcoa Corp. and other companies that import some aluminum from Canada, the Middle East and Asia.

"Our industry has been devastated for years, and nobody was talking about it," said Jesse Gary, Chicago-based vice president and general counsel of Century. "We had to stand up for it."

Century cobbled together support for the tariffs from the United Steelworkers union and small, private companies that make aluminum components. Century executives founded a trade group, the China Trade Task Force, to argue that rising aluminum production in Asia and the Middle East was to blame for falling employment at aluminum plants in the U.S.

Mr. Trump has said protecting U.S. jobs is a main goal of the tariffs, along with ensuring a domestic supply of the metal for defense and national security infrastructure.

Century and Alcoa are the only companies that operate aluminum smelters in the U.S. Century, which was spun off from Swiss mining and commodities conglomerate Glencore PLC in the mid-1990s, generated about two-thirds of its $1.5 billion in sales last year from its U.S. operations. The company also makes aluminum in Iceland.

Mr. Gary said Century executives decided to lobby for tariffs in 2015 as plunging oil prices touched off a broader commodity bust. The price of aluminum dropped 40% that year, and Century idled nearly all of the lines at its three U.S. smelters.

Century and other companies blamed the drop on a glut of aluminum production in China that they said was flooding the world with cheap sheet, plate and extruded shapes. Century said it needed tariffs to keep that government-backed production from undercutting prices in the U.S. or entering the U.S. duty-free through other countries.

"They became the most visible advocate for the tariff," said Lloyd O'Carroll, an industry analyst in Virginia. "Even though it's a small company, it was quite vociferous."

Alcoa, which made just about 14% of the aluminum it produced globally last year in the U.S., opposed the blanket tariff. The Pittsburgh-based company has been critical of companies in China overproducing aluminum, but supports reining them in through negotiated reductions instead of the Trump administration's strategy of a sweeping tariff on all the world's aluminum.

The industry's trade group, the Aluminum Association, also is opposed to the tariff. Many of the association's members make finished goods like parts for cars and airplanes with imported aluminum that will be subject to tariffs. They say there isn't enough production capacity in the U.S. to meet aluminum demand without imports. There are already U.S. tariffs on specific aluminum products from China, such as foil.

U.S. manufacturers and aluminum processors consumed 11 million metric tons of aluminum last year, while Century and Alcoa produced just 748,000 metric tons of raw aluminum here. Imports made up more than half of the difference, alongside aluminum from recycled scrap.

A spokesman said Alcoa is pleased that imports from Canada and Mexico will be exempted from the tariffs and wants additional exemptions granted for other countries that trade aluminum fairly. Alcoa and the Aluminum Association say the tariff will discourage other countries from working with the U.S. to discourage overproduction in China.

"You'll end up penalizing countries that agree with us," said Aluminum Association spokesman Matt Meenan.

Rising electricity costs in the U.S. and the construction of lower-cost smelters abroad contributed to the closure of nearly 20 U.S. smelters since 2000. Most have been demolished, including Century's smelter in Ravenswood, W.Va.

Century's Mr. Gary predicted the tariff and rising demand could lead companies to restart up to 1 million metric tons of annual U.S. production capacity. He said electricity costs are no longer the liability they once were. An abundance of cheap natural gas used to generate electricity has brought down power costs in the U.S. Electricity accounts for almost half the cost of producing aluminum in a smelter.

The new owner of an idle aluminum smelter in southeast Missouri plans to restart about 60% of the plant's production capacity this year after securing an electricity contract. The plant has been closed for two years.

After Mr. Trump committed to the tariff this month, Century said it would double both its production and workforce at a Kentucky smelter. Alcoa was already planning to partially restart a smelter in southern Indiana this year before the tariffs were announced.

"You're seeing production come back on," said Mr. Gary. "We think the right remedy was reached."

 

(END) Dow Jones Newswires

March 22, 2018 08:14 ET (12:14 GMT)

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