Alcoa Inc.'s latest aluminum-making cutback is signaling the end of the iconic American industry.
For 127 years, the New York-based company has been churning out the lightweight metal used in everything from beverage cans to airplanes, once making it a symbol of U.S. industrial might. Now, with prices languishing near six-year lows, it's wiping out almost a third of domestic operating capacity, Harbor Intelligence estimates. If prices don't recover, the researcher predicts almost all U.S. smelting plants will close by next year.
While that's a big deal for the U.S. industry and the people it employs, it doesn't mean much for global supplies. Alcoa's decision to eliminate 503,000 metric tons of smelting capacity accounts for about 31 percent of the U.S. total for primary aluminum, but less than one percent of the global total, according to Harbor. For more than a decade, output has been moving to where it's cheaper to produce: Russia, the Middle East and China. A global glut has driven prices down by 27 percent in the past year, rendering American operations unprofitable and accelerating the pace of the industry's demise.
“You've seen a fair clip of closures in the U.S., that is just unfortunate, but a development that's very difficult to change,” Michael Widmer, head of metal markets research at Bank of America Corp. in London, said in a telephone interview. “It means you'll just have to purchase from somewhere else.”
That's exactly what Jay Armstrong, the president of Trialco Inc. in Chicago Heights, Illinois, is doing. The company, which turns aluminum into finished manufactured products, now buys about 80 percent of the supplies it turns into car wheels from overseas. That's up from 40 percent five years ago, he said.
“It's not the kind of business where we're going to pay more and buy all American,” Armstrong said in a telephone interview. “It's too competitive a business to do that.”
Aluminum is down 19 percent this year to $1,501 a ton on the London Metal Exchange. The metal touched $1,460 last week, the lowest since 2009, and most American smelters can't make money when prices are near $1,500 or below, Austin, Texas-based Harbor estimates. Plants overseas usually have the advantage of lower labor costs, cheaper energy expenses and weaker domestic currencies that favor exports to the U.S.
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Basically, by flooding the market with low cost aluminum, you are pushing the price down with increased supply. Now, when the US aluminum plants close, because they can't operate at a loss, then all aluminum will be imported from China.
That decreases supply which will increase price because the demand is the same? It's kind of a dangerous situation for American business who need aluminum, like auto manufacturers.
Capitalism 
