Market
April 17, 2024
Aboud: Investments key for aluminum sector revitalization
Written by Matt Aboud
On March 25, 2024, the Department of Energy announced the recipients of $6.3 billion in funding from the Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA) for industrial decarbonization projects.
This funding was open to all heavy industries and five projects from the aluminum sector were chosen, including a $500 million grant for Century Aluminum to construct the first new aluminum smelter in the United States since 1980. This project was cited as an important step to revitalize the U.S. primary aluminum industry.
With an annual demand in excess of 25 billion pounds, the U.S. imports nearly 10 billion pounds of primary aluminum from foreign sources. Major exporters to the U.S. have recently seen their trade disrupted or even fully stopped.
A significant portion of primary imports (18%) come from the Middle Eastern countries of UAE, Qatar and Bahrain, and today the tensions in the Red Sea have diverted cargo traffic from the Suez Canal around the African continent, increasing time and cost.
The Key Bridge collapse in Baltimore only exacerbates the challenges.
Russia, at one time satisfying nearly 10% of U.S. aluminum demand, has effectively gone to zero after the U.S. placed a 200% tariff on all Russian imports. On April 12, the U.S. and UK announced new sanctions restricting new Russian metal from being warranted on the LME and CME exchanges.
But even before these recent events, many questioned the wisdom of allowing an entire industry to complete disappear domestically. Free trade supporters were vocal in saying that industries should relocate to where they are most efficient and any governmental intervention was protectionism. The problem was that the free trade doctrine is based on all participants playing by the rules. This was not the case.
Beyond that, there are tangible and intangible benefits to having domestic industries that produce products that supply important domestic industries and the national defense.
Reflecting on the importance of aluminum and its fragile supply chain, the U.S. government included aluminum on its list of “critical minerals” in 2018 – minerals deemed to be “…essential to the economic or national security of the U.S.…[and] serving an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economy or national security.” This inclusion enabled aluminum producers to seek funding from the various Department of Energy programs created by the BIL and IRA, all with the goal of strengthening and decarbonizing the supply base. In addition, a clause in the IRA also gives U.S. producers of critical minerals an annual tax credit equal to 10% of the cost of production.
Government officials clearly see that aluminum will continue in high demand and is a key enabler for the green energy transition. With today’s finite scrap market, the U.S. will continue to need primary aluminum. The grants awarded last month by the DOE are another step to reinforce and re-equip the aluminum industry for the future.
