CRU: How China's Role in Reshaping the US Aluminium Rolling Sector Could Drive Major Investment

4 July 2019

Two events have served as the catalyst for improved US rolling margins and have spurred numerous investments in capacity. First came the US anti-dumping and countervailing duty investigations on Chinese foil and common alloy products which decimated such trade between the two countries.

In the aftermath of the Section 232 and 301 investigations, China retaliated by slapping a 50% import duty on US aluminium scrap, again collapsing such trade. The dumping cases brought life to a US rolling sector that had been struggling for years as rock-bottom Chinese prices compressed domestic margins. The duty on US scrap imports pushed back massive amounts of scrap into the US market, pushing prices to historically low levels.

When you cut off imports from the largest producing country in the world the market is sure to go through a state of shock. Although imports have seemingly been replaced, it required more than 10 countries to step in to fill the China void. Diversification is one thing but managing multiple overseas supply chains can become a headache. All else being equal, domestic-made product is certainly more desirable given its proximity. With scrap offering a significant competitive advantage to US rollers, perhaps now is the time for additional investments in rolling capacity to capture margins not seen in many years.

US market has nearly filled the China rolled products void

Nearly 12-months removed from the implementation of preliminary CVD and AD on Chinese common alloy sheet, the US market has come full circle. The initial thought of losing 38% of total US common alloy imports in one fell swoop sent shockwaves through the industry. This prompted panic buying and overcommitment on behalf of importers and foreign mills. As foreign mills overcommitted, delayed shipments began to pile up. Importers were forced to scour the globe in search of supply that would meet nearby requirements. Such holes continued to be plugged throughout the remainder of 2018 while foreign mills underperformed on delivery commitments, with some material arriving up to 4-5 months late.

2019 started off with a bang, with January imports of ex-China common alloy sheet posting a record high of nearly 88,000 tonnes. February imports dipped slightly, but still posted the 2nd highest monthly figure on record. A wave of late deliveries seemingly hit the US in March as such imports nearly reached 98,000 tonnes. While the import faucet ran full bore, availability at various US mills began to open up for a variety of reasons including restarts, debottlenecking, and equipment optimization. And here we are, a market once on the verge of a supply shortage, now in the midst of destocking that could last all of 2019.

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