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Aluminum Tariffs Raise Concerns in a Booming Construction Industry

08/28/2018

In March, President Trump signed an order that imposed a 25 percent steel tariff and a 10 percent aluminum tariff on imports from most U.S. trading partners. As of June 1, that list of affected trading partners includes Mexico, the European Union and Canada. (Canada represented almost half of the United States’ imported aluminum in 2017, according to the U.S. Geological Survey.) Aluminum and construction industry officials are critical of the measures’ intended economic benefit, and uncertain about their ultimate impact on material costs, the supply chain and the health of the overall economy.

“We can’t build the case that [the imposition of tariffs] is good for business; it’s not going to build our economy,” says Jeff Henderson, president, Aluminum Extruders Council. “It feels like it’s going to be disruptive.”

The most recent measures, which imposed a tariff of 10 percent on imported aluminum products from the three geographic regions, are the latest of the restrictions placed on foreign metal imports. On March 8, President Trump issued the initial proclamations, which imposed duties on steel and aluminum articles under Section 232 of the Trade Expansion Act. The actions were based on a report from the Secretary of Commerce which argued that the amount of imported aluminum and steel “[threatened] to impair the national security.” As of June 1, Argentina and Australia have been exempted from aluminum tariffs, but Argentina’s imports are subject to absolute quotas.

Industry sources interviewed after the imposition of tariffs on Canada, Mexico and the European Union say that the tariffs themselves do not seem to have affected aluminum supply thus far. Part of this is due to a strong construction market pre-tariff, says Michael Collins, managing director, Building Industry Advisors, speaking in a June 15 interview. He says he has not heard of anyone short of aluminum, and building is still booming. “The benefit of the tax cut has likely outweighed the negative of the tariffs at the current moment,” he says. Collins also cautions that the full impact on construction will not be known immediately. “Massive capital decisions aren’t made in the short term. It’s going to be a number of months before you know the impacts,” he says.

While supply has not changed, rising costs have affected profitability, says Collins. Speaking to Glass Magazine on June 14, Jean Simard, president, Aluminium Association of Canada, warns that as those material costs rise, they will trickle down the supply chain. Simard says that small and medium businesses in both America and Canada are seeing costs increase since the tariffs have been imposed, and that as cost is passed down, buyers are more likely to outsource parts from a foreign supplier.

In a June 11 interview, Oliver Stepe, president, YKK AP America, confirmed that rising costs were concerning downstream customers, but like Collins, warns against coming to any fast conclusions. “It is too early to determine the full scope of impact on the construction market stemming from the recent tariffs; however, any time there is an increase in the cost to build it does raise anxiety in the market,” says Stepe. “We also feel that the tariffs will have an impact on numerous other industries, and this is a concern in terms of the impact the tariffs will have on the greater overall economy.” Stepe says he has not seen problems with aluminum supply so far.

Collins recommends that suppliers and buyers remain in contact regarding aluminum costs, and that suppliers be sure that the cost of aluminum they supply is guaranteed from their own supplier. He advises aluminum distributors or industry manufacturers to put language in agreements that refers to tariffs. “Ensure that you’re not guaranteeing pricing to your customers for one day longer than your material suppliers are guaranteeing costs to you,” he says.

Added to the cost and supply pressures of the tariffs are recent sanctions against Russian oligarchs that went into effect on April 6. Russia is the second largest supplier of primary aluminum to the United States. The U.S. Department of the Treasury targeted seven oligarchs for profiting from Russia’s reported “malign activity,” which included “attempting to subvert Western democracies, and malicious cyber activities.” Among those targeted was Oleg Deripaska, a major shareholder in United Company Rusal PLC, one of the world’s largest aluminum producers. The abrupt loss of supply caused material costs to rise, according to reporting by the Financial Times. On April 23, the Treasury Department announced that U.S. companies supplied by Rusal have until Oct. 23 to complete their agreements.

Simard emphasizes that it is the smaller, downstream business that will be most impacted by the current tariffs and disrupted by the current market uncertainty. “Businesses have to make decisions, and this is not sustainable,” he says. “Businesses cannot thrive on volatility.”

By Norah Dick  |  Glass Magazine

Aluminum Tariffs Raise Concerns in a Booming Construction Industry