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Steel and Aluminum Making a Comeback in U.S.

Monty Turner
2:58 read

The trade war escalating between the U.S. and China over an imposed steel and aluminum tariff has become a tit-for-tat affair with all the trappings of a playground skirmish. President Trump took the first shot in March by declaring a 25% tariff on all U.S. imports of steel and 10% on aluminum. Initially proclaiming it as a measure to protect national security, it soon became apparent that the real intention was to put a squeeze on China’s global dominance of steel and aluminum production.

According to the World Steel Association, China produces nearly 50% of the world’s supply of steel while the U.S. produces just under 5% (831.7 metric tons vs. 81.7 metric tons). In fact, China’s total output is roughly equivalent to the rest of the world’s steel producers combined. Such high yields make the price of Chinese steel cheap, driving down the global cost and crippling steel manufacturers in other countries.

In late April, the Trump administration postponed the tariffs for Canada, Mexico and the European Union, and then announced preliminary exemptions for Argentina, Australia and Brazil. Clearly, China was being singled out and in retaliation, issued its own lengthy list of U.S. products they intend to tariff, largely within the agriculture, automotive and household appliance sectors.

Typically, government policy matters like tariff threats and postponements spell uncertainty and make industry skittish. Why then are companies suddenly expressing confidence in producing aluminum and steel in the U.S?

Soon after President Trump announced his tariffs on aluminum and steel, Magnitude 7 Metals LLC, an aluminum smelter owned by Swiss-based company ARG International, announced that work was under way to restart operations at a plant in southeastern Missouri. Obviously, Magnitude 7 had planned this move months or possibly years before any tariff talks emerged.  
Earlier this month, Nucor Corp. announced a $240 million expansion of its steel plant in northeast Arkansas. Century Aluminum Co. also announced that it will restart lines at a smelter in Kentucky that have been idle since 2015.

While tariffs may benefit companies investing in the United States in primary steel and aluminum production, it is not the motivating factor. The US has been on the radar of practically every major aluminum and steel manufacturer for two far more dominant and fundamental reasons:

1. Competitive Energy Rates

Energy makes up the majority of the costs of aluminum and steel manufacturing operations. One facility typically requires hundreds of megawatts of electricity, which can be equivalent to the output of a single power plant. Thus, finding locations with low energy rates is a top priority for aluminum and steel manufacturers.

It is no secret the U.S. is highly competitive when it comes the cost of energy. The most current data from the International Energy Agency (IEA) shows that as of 2016, of all 29 IEA member countries, only Sweden and Norway had lower industrial electricity rates than the U.S. Add in a robust electric grid and resilient infrastructure and you have an inviting market. Fuel costs are key, however, to keeping rates low for extended periods of time. Regions such as the Pacific Northwest can be attractive due to an abundance of hydropower, a renewable energy source with little price volatility. Electricity generated from natural gas will be more or less expensive as the cost of gas goes up and down, but long-term forecasts for natural gas prices are favorable due to the abundance of natural gas reserves in the Midwest, Northeast and South.

2. Strong Downstream Market for Metals

Currently and for the foreseeable future, the U.S. has one of the world’s strongest markets for metal rolling, forming and cutting. This is mainly due to the massive building boom taking place in the U.S. and the number of automotive and aerospace OEMs located here requiring raw material to produce goods. The U.S. is home to dozens of automotive OEMs and thousands of suppliers, and it has one of the largest aerospace industries in the world. A 2017 KPMG global survey of automotive executives reveals many telling and interrelated reasons for the popularity of the U.S. One is that the vast majority of automakers see the U.S. and Germany as the best countries in which to pilot future automotive innovations. Given the dizzying rate in which innovations are taking place, (e.g., autonomous vehicles, connectivity, sustainable power sources), it makes sense for manufacturers to produce where they test and pilot their latest projects. In addition, 48% of survey respondents said availability and cost of raw materials is a critical factor in deciding where to produce. With Germany having some of the highest energy rates in the world, this leaves the U.S. in the dominant spot.

Aluminum and steel producers’ renewed confidence in the United States signals good news for an industry that has experienced a brutal beating for much of the past 20 years. More than 100,000 jobs were lost as dozens of companies shuttered plants or folded entirely. Despite what happens with current political rhetoric, it is assured these industries are making a comeback that is certain to be every bit as dynamic – albeit more technologically advanced – than its previous iteration.

As Global Location Strategies helps find suitable locations for steel and aluminum producers, we can also assist communities in their efforts to compete and win business investment from them. Contact us to learn how.

Category: Blog