Stopping the demise of Europe’s aluminium industry

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Spanish workers of US aluminum producer Alcoa protest against the planned closing of Alcoa facilities in A Coruña and Aviles, in A Coruña, Spain, 13 January 2019. [EPA-EFE]

The European Commission needs to tackle the abusive market practices of aluminium producing countries like China that rely on state aid and environmental dumping to erode the market share of European companies, writes Mario Conserva.

Mario Conserva is Secretary General of the Federation of Aluminium Consumers in Europe (FACE), the only association exclusively representing the interests of aluminium consumers in Europe. 

The fact that 700 workers at Alcoa’s Spanish aluminium plants in La Coruña and Avilés are rioting to keep their jobs should give pause to policymakers in Brussels. The two towns have been in uproar ever since the American producer announced last October that the plants would be closed due to a series of structural factors (such as high energy costs and Chinese overproduction). Making matters worse, the American company announced earlier this week that San Cipriàn, the third (and last) smelter still operating in Spain, would also be closed unless a solution is found for the country’s high electricity prices.

Alcoa’s moves add pressure on the European Commission to radically adapt its out-dated trade and industrial policies. Saddled with deep disadvantages, the EU has lost a third of its total primary aluminium output between 2002 and 2016 – in just fourteen years, more than 10 smelters have closed up shop.

Even before Alcoa’s announcements, domestic production only satisfied around 30% of total consumption, making the EU reliant on imports to keep the thousands of SMEs in the downstream sector supplied. To put that into numbers, the EU’s primary aluminium production in 2017 was 2.1 million tonnes, down from over 3 million in 2002, leaving the EU market over 70% dependent on imports.

To be fair, the EC could have done little to prevent their closure. When asked by the European Parliament about the potential closure of the Alcoa smelters, the EC replied that its hands are tied in this matter: companies are free to make decisions in the common market, and state aid is severely restricted. The only helping hand could come in the form of social funds to help the workers whose jobs are on the cutting block.

With such limited policy options, it should be clear for the EC that the only way forward should be a new raw material access policy that can save the downstream aluminium sector, a strategic industry and a major driver for the continent’s economic strength and wealth. But thus far, EU policymakers have fallen woefully short of that objective.

Trade policy to the rescue?

For the past 20 years, the Federation of Aluminium Consumers of Europe (FACE) has been warning the EC that the current road will lead to the inexorable decline of a sector that sustains over 1 million indirect jobs. According to studies conducted by the LUISS University of Rome on FACE’s behalf, the competitiveness of European SMEs in the aluminium downstream sector is weighed down by the EU’s import tariffs on unwrought aluminium.

Ostensibly introduced to protect European smelters from international competition, the 6% tariff on imports of unwrought aluminium has translated into artificial costs for downstream SMEs of up to €1 billion annually, while doing nothing to stave off the decline of primary production. In fact, as the LUISS studies show, structural factors are the main reasons that have turned primary aluminium production in Europe into a loss-making industry.

The main culprit is unsustainable energy costs, which have made Europe’s aluminium production among the most expensive in the world. Smelters have sat at the top of the cash-cost curve since the mid-2000s – even before Chinese overproduction depressed global aluminium prices. As far back as 2006, producing one tonne of aluminium cost EU smelters $2232, compared to $2168 in Norway, $1818 in Iceland, $1801 in Canada and  $1484 in Russia.

On top of sky-high electricity prices, the EU’s carbon tax and climate objectives have pushed production prices higher. It’s no wonder aluminium companies have left the continent in droves, offshoring their smelters to countries with cheap power, low labour costs and preferential market access to the EU.

It is therefore surprising that the steady decline of the aluminium industrial base did not push EU Governments or the EC to offer relief and stimulus measures to support the competitiveness of the continent’s downstream aluminium sector. As FACE has repeatedly advocated, the 6% tariff on imports has only made aluminium products more expensive.

The tariff has rendered the European production of semi-finished products (such as extrusions, widely used in construction, building and transportation) to stall at a time of rising demand in other major markets, particularly in Asia and the Middle East. European production of semis contracted by 0.1% per year between 2000 and 2017.

It should have been clear long ago that these tariffs are nothing short of a serious political blunder.

EU will eliminate industrial tariffs only if US lifts metal duties

The European Commission has made clear to the US administration that the elimination of industrial tariffs will depend on Washington lifting duties it imposed on EU steel and aluminium last summer.

Hard choices

But the decline of downstream producers can – and should – be stopped. Europe has a competitive advantage in manufacturing because of its highly skilled labour force and technological edge. But innovation alone cannot save the European aluminium industry in an intensely competitive market.

Policymakers in Brussels need to act decisively if the ongoing demise of the sector is to be halted. Given the indispensable importance of adhering to climate goals – the EU has recognised this as a main driver behind rising electricity prices for the sector – along with high labour costs on the continental heartland and lack of primary materials in the EU, it’s time to take the needs of the downstream sector seriously.

It is therefore crucial that European governments and the EC do everything in their power to secure the survival and foster the growth of the aluminium downstream value chain. Eliminating the import tariff on unwrought aluminium is a first step that will lower the cost of raw materials and boost the competitiveness of the downstream sector.

At the same time, we must be clear-eyed that decades of neglect won’t be undone overnight. The EC needs to tackle the abusive market practices of certain aluminium producing countries (such as China) that rely on state aid and environmental dumping to erode the market share of European companies. Tariffs on imports of manufactured goods should therefore be, at a minimum, kept at current levels or even increased.

The unfortunate Alcoa closures should be the wake-up call for European governments and the EC to act quickly and swiftly or risk seeing the entire industry progressively shutting down.

Aluminium boss: Chinese dumping a ‘slow death’ for European industry

Unfair Chinese aluminium trading is killing the European industry and, if the country is given market economy status by the European Union, it could have a catastrophic impact on EU jobs and production, warns Gerd Götz.

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