Monday, December 15, 2014

And, Now We Know…

On December 17, 2014, the Aluminum Extruders Council (AEC) and Ducker Worldwide will co-host an AEC members-only webinar to announce the findings of Ducker’s study on the impact to our industry of the U.S. aluminum extrusions trade case against Chinese extruders.  It will come as no surprise that hundreds of millions of pounds have returned to the domestic market since the preliminary orders took effect in October 2010. What may be new is:
1) Which end use categories were hardest hit?
2) Which end use categories are vulnerable to extruders if duties should decrease?
3) What is the relationship between tariff rates on Chinese extrusions and market share penetration in the U.S. market?

On these first two items, I invite you to attend the webinar.  On the third item, Ducker’s analysis charted Chinese price differentials to the U.S. market against their market share performance.  This analysis gives the industry its first look at a supply-and-demand curve to the U.S. industry.  This enabled Ducker to chart industry scenarios for the coming years.  Each year, the Department of Commerce (DOC) performs an administrative review that examines the production costs and prices of Chinese extruders they select.  At the end of that review the DOC sets tariff rates for the current year and the next year.  Since it is clear that price was the only motivation manufactures had to offshore extrusion supplies, duty rates become the key issue for us to focus our resources.

The webinar will show members the payoff from their investment in this fight, and the risks that lie ahead if we should retreat in our resolve.  Now, keep the proper context in mind when thinking about this topic.  Prior to the Chinese dumping campaign of 2009, Chinese extruders accounted for approximately 6% of the U.S. market.  At their peak in late 2009, their market share hit 20%.  Today, Chinese extruders account for approximately 1% of the U.S. market.  One might look at all of this and conclude that our industry can afford to relax in our defense.  After all, even if duty rates drop to a level that could result in a 5% share for Chinese extruders, that’s a level we survived with in the past.

The problem is that the domestic industry has already absorbed that difference, and allowing Chinese extruders to find their way back to a 5% share WILL lead to a loss of nearly 200million pounds per year.  That’s the equivalent of 5-7 operations and hundreds of direct and thousands of indirect jobs!
Commerce works hard to determine what the duties need to be in order to level the playing field by examining the production and sales data from select Chinese extruders each year in a process called an Administrative Review.  If our industry was not actively involved in that process, the DOC could be inclined to take the Chinese numbers as fact.  It’s been our experience that those submittals are quite open to interpretation, and will always require a push back from our industry to achieve true apples-to-apples comparison.  Without our full defense it is clear that tariff rates will deteriorate, and based on Ducker’s work Chinese market share will grow.

Another element of the study worth noting is how the Chinese industry is responding to the orders.  Clearly, they have not just sat back and watched 600-million pounds go away without taking countermeasures.  Ducker investigated the Chinese industry and confirmed some of the tactics being taken:
1) Increase the value-add portion of their extrusion offering in order to make it a ‘finished’ product
2) Substitute traditional 6000-series alloy applications with 5000-series alloy
3) Usage of third-party countries to mask the country of origin.

Again, this comes as no surprise to our industry.  We have seen all of these tactics from the Chinese. On the first point, the AEC’s Fair Trade Committee continues to spend as much as 60% of its time reviewing and opposing scope requests that attempt to water down the clear meaning of a constitutes a final and finished good.  Without our opposition, the DOC could view our silence as consent.  Since one scope ruling creates a precedent for the next case, any let up on our part could lead to a string of decisions that would permanently deteriorate the scope of our orders.

The second and third points are all about circumvention.  Much has been written about 5000-series substitution.  Anyone associated with this case is aware of the hours, testing, testimony, advocacy, and legal push that have been focused on this issue.  Clearly, without our efforts this tactic would go unchecked and continue to take share from domestic extruders.  Third-party country issues were at the heart of the Puerto Rico case and so-called ‘Basco’ case.  The AEC continues to get reports of this type of activity on a number of fronts.   While individuals can, and do, report suspicious activity directly to U.S. Customs, it is our industry’s unified effort that keeps the pressure on our government to take allegations seriously.

One of the most commonly asked questions I get is how effective the trade orders have been to our industry.  Up until now we have answered that question for ourselves.  Now we have a credible third party that has examined the issue, confirmed our victory and confirmed our worst fear.  The tariffs have been effective, and without them our industry will see a speedy return to the days when millions of containers of aluminum extrusions were dumped into our market from unfair and illegal trade practices from the People’s Republic of China each year.  The difference between the first time we experienced this, and the next – if it should come – is that we had the option to petition for protection the first time.  If we give up this fight now, there won’t be an opportunity to petition again.
Please join us on December 17th to learn more about what Ducker Worldwide found.  If you can’t join us, the full report will be made available to members in our AEC library.