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Wednesday, June 5, 2024 | Back issues
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New southern aluminum plants bet big on evolving domestic market

The nation’s first new flat-rolled aluminum mills in 40 years were announced last year, as the domestic aluminum market bounces back from global saturation and embraces sustainability.

(CN) — Wherever you are, wherever you go, take a look around your immediate vicinity. Aluminum is there – whether it’s in the lamp on your desk, the phone in your hand, a single use beverage can or reusable bottle nearby, the skin of an automobile, aircraft or boat you may be traveling in, the major components of your laptop or desktop computer. 

Aluminum is omnipresent. Yet as recently as 2018, the aluminum market was saturated. America’s domestic output of aluminum plunged while cheap imports flooded the market. At the time, the U.S. Department of Commerce conducted an investigation under Section 232 of the Trade Expansion Act and the resulting report concluded the global market for aluminum posed a threat not just to domestic production, but also to national security. 

Six of 11 primary aluminum smelters in the country ceased operations between 2012 and 2017, while the nation imported an average of five times as much finished aluminum as it produced. In 2016, imported aluminum represented 64% of all domestic consumption, leading to a trade deficit of $7.2 billion. 

The Commerce Department report primarily pointed the finger at China, which was producing so much aluminum that it had more reserves than the United States produced in a year. Meanwhile, the U.S. completely lacked any strategic reserves of aluminum or its derivatives and only two remaining smelters were capable of producing primary quality aluminum of a suitable quality for the defense, aerospace and tech industries. 

As a result of the investigation and with bipartisan support, former President Donald Trump initially imposed a 10% tariff on aluminum imports from countries other than Canada and Mexico in early 2018. After additional measures were taken against Chinese aluminum in particular, primary aluminum production in the U.S. increased 37.6% by 2020, breathing new life into the industry, according to a 2021 study by the Economic Policy Institute.

Within the same two years, American aluminum manufacturers announced $6 billion in new capital investments and along with it, about 5,500 new jobs. Demand dipped during the Covid-19 pandemic but in May 2022, American manufacturer Novelis announced “the first fully integrated aluminum mill built in the United States in 40 years.”

At a cost of $2.5 billion, the Atlanta-based company will build a low-carbon flat rolling mill and recycling facility on a 3,000-acre greenfield site in Bay Minette, Alabama, creating about 1,000 new jobs with an average salary of $65,000, or roughly 25% more than the state’s median annual household income. 

Remarkably, just a few months later, a strikingly similar investment was announced in Columbus, Mississippi, just 250 miles away. There, Steel Dynamics is building its own $2.5 billion recycled aluminum flat-rolled mill, expected to provide 700 jobs with an average salary of $93,000, or nearly twice the median household income in Mississippi. 

According to the Aluminum Association, both new mills will produce products for canning and packaging. Novelis has indicated it will have flexibility for automotive products, while Steel Dynamics has indicated they will serve the automotive and common alloy industrial sectors.  Both have plans to use a significant amount of pre- and post-consumer aluminum scrap in the production process.

And both states are throwing economic incentives at the developments. More than $500 million in public contributions have been awarded to the projects, broadly supporting incentives including tax breaks, rebates, workforce development and infrastructure improvements. 

But according to parties who negotiated the developments and others with knowledge of the international aluminum market, the new mills in Alabama and Mississippi were not just the result of recent trade policy, but also sustainability initiatives and carbon emission goals. 

Meanwhile, primary aluminum smelting in the nation has yet to rebound. Last summer, Century Aluminum announced it was mothballing its facility in Hawesville, Kentucky, due to “skyrocketing energy costs.” The facility was the largest producer of military-grade aluminum on the continent and with its closure, just one other smelter with similar capabilities remains in operation.

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EPI Senior Economist Adam S. Hersh, an author on the 2021 aluminum report, said the domestic aluminum market is ripe for capital investment since the import measures were imposed in 2018. 

“It's really a national security issue as well as an economic issue,” Hersh explained by phone last week. “Because global markets have been suffering from surplus capacity, chronic overcapacity because of state supported investments in places like China … that just drives the global price down so much. Then we get to a situation where there's a risk of having zero production in the United States.”

Hersh also pointed to sustainability initiatives driving new investment in domestic aluminum production, predicting that in the future, single-use plastic packaging is likely to be phased out, while aluminum will also benefit from the Bipartisan Infrastructure Bill of 2021 and as the nation invests in renewable energy, aerospace and electric vehicles.

In a response to emailed questions about the investment in Alabama last month, Fiona Bell, Novelis' director of communications and government affairs, said government policy has been helpful, but it was generally a result of customer demand. She added the company is making roughly $500 million in additional investments at existing facilities in Guthrie, Kentucky, and Oswego, New York. 

“Novelis’ decision to invest is based on strong North American demand from can makers and beverage companies for flat-rolled, low-carbon aluminum,” Bell explained. “To support our investment, Novelis will recycle a large amount of used beverage cans each year. We support public policy solutions that encourage Americans to recycle their beverage containers more often and upgrade recycling infrastructure – from expanded curbside recycling access to more away-from-home recycling options. We see an opportunity for even more policies at the federal and state level that would make it easier for all Americans to recycle and contribute to the circular economy.”

Charles Johnson, president & CEO of the Aluminum Association, said with aluminum customers driving the market by setting their own sustainability targets, the industry is poised to reinvent itself.

“Aluminum companies in the United States have made significant investments in process and technology improvements to facilities and operations over the past three decades,” Johnson wrote via email, citing innovations in everything from machinery lubricants to water treatment. “There is no doubt that the long-term prospects for this industry are incredibly strong. We anticipate growth in the automotive and packaging markets in particular. And we are working hand in glove with our members to continue to strengthen the domestic industry and build on opportunities for growth and sustained demand.”

Similar to Novelis, Mississippi Development Authority Director Laura Hipp described Steel Dynamics’ goals in Columbus. 

“[They are] planning a high-energy efficiency mill, and the company’s metals recycling platform is expected to supply 100% of the scrap aluminum for these operations,” Hipp explained last month. “Also, plans to allow strategic customers to co-locate on the site, it will save logistics funds and other shipping costs and eliminate a high shipping carbon footprint. With use of existing, mature, and dependable natural gas, water sources and access to ample renewable power, the mill is expected to be a model of energy efficiency.” 

Alabama Director of Commerce Greg Canfield said in a phone interview Wednesday “the marketplace is demanding more sustainable approaches.”

“The market has changed a lot,” he said. “There's certainly a push globally and a growing push in the U.S. for more sustainable approaches. It's one thing to be responsive to the regulatory environment, but I think it's a completely different, more responsible, customer-focused approach to be more market-driven.”

Canfield said perhaps more impactful than the initial investment will be the multiplier effect, with additional investment expected to support the facility’s supply chain, distribution and logistics network.

“There will be more people that will be hired around new suppliers of services related to scrap aluminum, as well as new recyclers that will be created,” he said, describing some of the direct, indirect and “induced” effects of the investment. 

“Those workers that will be employed will be able to buy more housing, bigger houses, more groceries, more clothes, those kinds of things. We certainly do our due diligence in evaluating what makes a project attractive and there are a lot of variables, but that's all part of the return.”

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