Those arguments do not address the fact that America’s aluminum industry is in crisis. These high tariffs in conjunction with soaring energy costs are leaving companies with no choice but to reduce production and shut down plants. Canadian aluminum is now subject to a punitive 25% extra tariff. Yet, this move won’t be enough to incentivize manufacturers and suppliers to relocate their operations to the U.S. Industry leaders attribute this stagnation to an essential factor: the lack of access to competitively priced power.
In a recent interview, Trond Olaf Christophersen, the chief financial officer of Hydro, pointed to one precise point in time. He justified those high tariffs by claiming that they made it more lucrative for Canadian aluminum producers to ship their products to Europe. Christophersen pointed out that it’s downstream users that end up shouldering the cost of tariffs, frequently leading to inflated prices for U.S. consumers.
“Energy costs are a significant factor in the overall production cost of a smelter,” said Ami Shivkar, an industry expert. This is a sentiment that is heard across the sector, where producers such as Alcoa Corp and Century Aluminum have incurred extreme operational headwinds.
In March 2023, Alcoa Corp announced the permanent closure of its Intalco smelter in Ferndale, Washington. This makes sense because the smelter had been idle since 2020. The firm pointed to its inability to remain competitive in the universe. This challenge is primarily due to inadequate access to affordable, clean, safe, and reliable power. Similarly, Century Aluminum announced on June 22, 2022, that it would temporarily idle its giant Hawesville smelter due to “skyrocketing energy costs.”
The disparities between energy costs are stark. U.S. aluminum smelters are fighting energy costs of around $550 per tonne. In remarkable contrast, it costs Canadian smelters only $290 per tonne. This pricing disparity undercuts U.S. producers’ ability to compete on the world stage.
“The power cost required to run the facility has more than tripled the historical average in a very short period,” stated Century Aluminum regarding its Hawesville operations. The facility would be required to reduce capacity for nine to twelve months. This decision is a recognition of the current extreme volatility in energy prices.
Christophersen provided full context on Hydro’s precarious position. Even though they use U.S. scrap aluminum—a local raw material—the current prices are now starting to incorporate the indirect impacts of tariff costs. As a follow up, he shared more details about Hydro indirectly paying these tariffs, which ultimately get passed onto customers.
We’re covering the tariff cost, but we immediately pass that on, so it’s kind of a wash for us,” Christophersen added. He noted that “the lack of competitive power is the reason why we don’t think that would be interesting for us” to establish further operations in the U.S.
Perhaps the most eye-popping trend mentioned by JPMorgan analysts was that European aluminum premiums stand more than 30% lower year-to-date than U.S. prices. This huge divergence is largely due to U.S. trade policy. For U.S. manufacturers, this average represents the challenges our manufacturers face competitively here at home, as well as around the globe.
“The tech sector, they have a much higher ability to pay than the aluminum industry,” Christophersen observed, suggesting that downstream consumers might bear the brunt of these increased costs. His remarks highlight a growing worry across the industry about the impact of pricing pressures that have been transmitted down to consumers.