The removal of U.S. sanctions on Russia’s United Company Rusal is accelerating a decline in prices for Canadian aluminum producers already grappling with a 10 per cent tariff imposed by Washington.
Yet the pain of the U.S. levies remains more severe for manufacturers and downstream producers south of the border, industry leaders say.
Canadian aluminum smelters are currently operating at a near-full utility rate of 93 per cent, suggesting U.S. demand for the metal is steady, even with the tariff in place, said Jean Simard, president of the Aluminum Association of Canada.
“We have to absorb part of the cost, of course, which represents millions of dollars for producers here so it affects their margins,” said Simard. “But these are long-term players and they are managing. The pain factor is much higher and harder in the U.S. than here. There are all sorts of small enterprises that are suffering.”
American automakers and manufacturers have been lobbying the Trump administration to remove its tariffs on steel and aluminum, arguing the levies are boosting costs for domestic businesses and exposing them to damaging retaliatory tariffs.
Political opposition is mounting too. On Tuesday, a key member of Congress on the international trade file said Republicans and Democrats alike won’t back the revised North American Free Trade Agreement — Trump’s signature trade deal — with the tariffs in place. Rep. Kevin Brady, the ranking member of the House Ways and Means Committee, which has jurisdiction over international trade, says while support for the U.S.-Mexico-Canada Agreement varies on Capitol Hill, there’s a consensus the tariffs must go — without being replaced by quotas.
“Key things in my discussions with members, Republicans and Democrats, is that they’re not really willing to consider this agreement until the steel and aluminum tariffs are ensured to be lifted off, including quotas,” Brady said Tuesday during a brief appearance at a trade conference in Washington.
The U.S. Treasury Department on Sunday lifted sanctions on three companies linked to Russian billionaire Oleg Deripaska — including Rusal, the world’s largest aluminum firm and the second largest producer of the metal after China.
The sanctions on Rusal — punishment for Russia’s annexing of Ukraine’s Crimea, accusations of meddling in the U.S. elections and support of Syria’s government in its civil war — were removed despite a Democrat led push to keep them in place.
The decision made the Washington look soft on the Russian leader at a time when Special Counsel Robert Mueller is continuing his investigation into Russian interference in the 2016 presidential election and possible connections to the Trump campaign, the Democrats argued.
The U.S. Treasury said Deripaska has reduced his stakes in the companies, a move that ensured most board directors would be independent. The sanctions will remain on Deripaska himself.
Aluminum prices fell about 1.4 per cent to around US$1860 per tonne on the news after soaring to US$2267 per tonne when the sanctions were first imposed in April. The prices had softened substantially in recent weeks on the expectation that the sanctions would be lifted.
Rusal — the second largest supplier of aluminum to the U.S. — will still be subject to the 10 per cent US tariffs on aluminum imposed in March 2018.
And though the re-entry of Rusal in the U.S. market will likely push prices down at a faster rate it could also lower costs for alumina, a key ingredient in the production of aluminum, said Simard. Rusal has alumina refineries in both Ireland and Jamaica.
“That’s the good news,” said Simard, whose call for a full removal of the U.S. tariffs without the imposition of quotas has been echoed by aluminum industry associations south of the border.
Though the U.S. consumes 5.5 million tonnes of the aluminum each year, it’s smelters produce less than one million tonnes, making the country particularly reliant on imports — more than half of which come from Canada. Meanwhile, nearly 97 per cent of employment in the U.S. industry is in downstream production and processing firms, that must import the metal and absorb the tariff.
“To date, American imports of aluminum worth more than $8 billion have been hit by Section 232 tariffs in what amounts to a significant tax on the metal,” Heidi Brock, chief executive of the Virginia-based Aluminum Association said last week. “Continued job growth these segments relies on a mix of domestic and imported primary aluminum, particularly coming from trading partners and allies like Canada.”
With files from The Canadian Press and Bloomberg