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As part of Metal Bulletin’s Next 100 series of articles looking at the future of metals and mining, Malcolm McHale, president of the Federation of European Aluminium Consumers (Face) considers the effect of aluminium tariffs on the European market.
As the attention of the world’s media and markets are focussed once again on the queues to extract metal from LME warehouses, the debate has edged the far more important issue of tariffs further into the shadows.
Until such time as the WTO removes tariffs on downstream products, it is worth asking what the effect would be of reducing all primary aluminium import tariffs – unwrought unalloyed and alloyed – to 0%, while leaving import tariffs on semi-fabricated and fabricated products as they are?
Aligning trade tariffs with competitors is a crucial step towards creating a fair competitive base – a level playing field for all market participants.
Level playing field At this point we hear screams from some sectors of the industry crying “foul”, as they shout that energy costs, labour costs, environmental standards and other factors are also essential components of a level playing field.
Not true. These are issues industries have to manage, and which are ultimately reasons why industries close or move from some countries to others.
Japan, the USA and other developed economies with unsustainable energy costs for competitive primary aluminium production removed primary aluminium tariffs decades ago, to provide competitive aluminium supplies to their downstream industries.
From 1982 until 1995 I was employed by Alcan as metal supply manager for European plants. I then moved to Dubal as marketing director, to set up a global sales organisation. In 2003 I became an adviser to Dubal Marketing (and remain in this position), and about the same time I joined the Advisory Board of Rheinfelden Aluminium (EU).
Also in 2003, I was invited by FACE to be its president, a position I still hold.
I have had access to global market premiums for primary aluminium products since 1982. I have observed closely the damaging effect that primary tariffs have had on some downstream sectors, and the abuses perpetrated by some primary companies to protect the benefit the tariff gives them, both in higher market prices and – more importantly – in influence over customers through restricting competitive supplies to the EU.
Abuse of the tariff structure has been, in my experience, continuous, as producers, traders and forwarders sought to gain financial advantage from procedural weaknesses. Here are some examples:
The list of abuses is long and continuous and has distorted competition in the widest sense between companies in the EU, and still does. Today the EU market for primary aluminium is restricted and uncompetitive, because of the tariffs.
Technology and competition None of the nationalised aluminium companies exist anymore, having been lost through takeovers and in most cases split up.
Much of the remaining EU primary aluminium smelter capacity is in the higher-cost quartiles of global capacity, and is in a similar grouping when the age of its smelters is considered.
China apart, the claims of higher environmental and safety standards when compared with other smelter sources supplying the EU are not justifiable, just as claims that they lead the world in smelter technology are similarly invalid.
The vast majority of employees in the EU aluminium industry work downstream of the primary smelters, in rolling, extruding and casting operations.
In these areas, EU companies compete globally in technology and research terms, but continuing profitability and capital investment are essential to maintain their status.
So, what would be the effect of reducing to 0% the import tariff on unwrought unalloyed and alloyed primary aluminium product?
Malcolm McHale is a marketing adviser at Dubai Aluminium. He is also the president of the Federation of European Aluminium Consumers (Face). As part of its centenary celebrations, Metal Bulletin has asked leading participants from different parts of the metal and mining industry to take part in MB’s Next 100, a series of pieces on how the future might unfold.
Twitter: #mbnext100
Malcolm McHale editorial@metalbulletin.com