The good, the bad, the suspect

Tariffs on Chinese aluminum help some, hurt others
By Katy Devlin and Jenni Chase
October 31, 2011
COMMERCIAL, FABRICATION : METALS

In April 2011, the U.S. International Trade Commission instituted antidumping and countervailing duties on aluminum extrusion products from China, following a Department of Commerce investigation that determined 29 Chinese companies dumped some $500 million worth of extruded aluminum products into the U.S. market last year. According to the DOC, the Chinese exported their aluminum extrusions to the United States at roughly 33 percent less than their value, giving Chinese companies an unfair advantage over domestic producers.

Since the ITC decision, glass and glazing companies report the tariffs have impacted them in various ways: some positive, some negative, depending on industry segment. Others say more action is needed, as reports of Chinese companies circumventing the tariffs come to light.

The good

According to industry representatives, the tariffs have worked as expected, leveling the playing field between Chinese and U.S. companies producing extruded aluminum products.

"In 2009, the U.S. brought in 400 million pounds of extrusions from China. It was 20 percent of the industry at that time. With the duties, it's down to a trickle, and that material is coming back to domestic extruders," says Duncan Crowdis, president of Bonnell Aluminum and current chairman of the board of directors for the Aluminum Extruders Council. Crowdis also served as chairman of the U.S. Aluminum Extrusions Fair Trade Committee, the industry group that led efforts to petition the ITC to impose duties.

Speaking on condition of anonymity, a representative from a U.S.-based aluminum extruder said the tariffs have already proven beneficial: "We saw the effects of the tariffs almost immediately. Chinese extrusion shipments were coming in at about 40 million pounds a month. When the tariffs took hold, they fell immediately to about 1-2 million pounds a month. Clearly, that achieved its goal. We can also see the effects in our order intake rates. For the first quarter after [the tariffs] had taken hold, orders were up and shipments were up. It was quite a spike."

"Overall, we believe that the tariffs imposed on aluminum imports will positively benefit Kawneer," Greg McKenna, chief product engineer, Kawneer North America, and Kevin MacDonald, director of procurement, Alcoa Building & Construction Systems, said in an email. "Recently, there have been several Chinese-based system companies that have been shipping basic stock length storefront and curtain wall systems into the U.S. The Commerce Department now is imposing a 137.5 percent subsidy rate on these imports, which will level the playing field with domestic producers. ... The tariffs will help the domestic extruders regain some of the market share that has been lost over recent years to China," they said.

"Early indicators are proving this was very effective and positive for our members, and those dumped aluminum profiles have pretty much disappeared," agreed American Architectural Manufacturers Association President and CEO Rich Walker, in an interview with Glass Magazine earlier this year.

The bad

The ITC decision has been less kind to some players down the supply chain. Representatives from some shower enclosure companies, for example, report the tariffs have led to huge price jumps for aluminum shower door products.

"With Brite Dip materials no longer available from China, and not currently produced in any other country, we are forced to purchase domestically at 40 percent to 130 percent greater cost," says Ray Adams, president, Coastal Industries.

"The tariffs have forced manufacturers like us to rethink our manufacturing process. We may not be able to go to market with American-made products as we have in the past," he says. "Before the tariffs, we could mix imported and domestic metals, fabricate shower doors here in America and compete with imported items. With the tariffs on raw goods, we are all faced with having to look at producing doors overseas, tariff-free, in order to compete."

While contract glazier Trainor Glass Co. isn't feeling the effects of the tariffs, Rick Hamlin, executive vice president, estimating and design, says he could see them impacting shower enclosure companies. "Most of our purchases are not from Asia. While a minor amount of it is, we're not feeling the effects [from the tariffs]," he says. "We do have one supplier who has material coming from China, and it's affected them quite a bit. I could see how this would affect glass shops, as there was a lot of push from Chinese companies to get shower doors and hardware in, where they had a price advantage."

Costs for domestic aluminum shower door products remain high, glass companies report, as North American suppliers try to pass on material price increases. Aluminum prices rose sharply during the last half of 2010 and first part of 2011, increasing more than 50 percent from June 2010 to April 2011. At press time, the cash price for aluminum was on a downward trajectory, sitting at about 8.5 percent below last year, and about 21 percent below aluminum's peak in April.

"On the framed shower door end, the prices all went up," says Jeff Meyer, president, White Bear Glass. "In fact, the gap in price between a custom aluminum framed shower door and heavy frameless glass shower door is pretty much gone. The change in aluminum pricing radically closed that gap," he says. "We used to sell 50 percent framed and 50 percent frameless, but in the last year, that's gone to at least 80/20 towards frameless."

On the up side, Meyer says the increased cost has made the move to sell higher-end frameless options easier. "In the selling process, because of the expense of aluminum, we just move right past that and sell the higher end frameless options," he says. "There's just no margin or value in selling a framed shower door versus a frameless one. Overall, it makes the entire sales process more simplified."

High aluminum costs are also behind the trend toward using stainless steel extrusions rather than aluminum in framed enclosures. Some shower enclosure specialists report they are considering a transition to stainless steel, marketing it as a more contemporary finish. [See "Metal dilemmas"].

The suspect

While the tariffs apply to Chinese aluminum extrusions, they do not apply to finished merchandise containing these aluminum extrusions, which in the case of the glazing industry, could include products such as unitized curtain wall or assembled shower doors.

"The scope [of the aluminum extrusion duties] includes aluminum extrusions and some assemblies of aluminum extrusions—incomplete, downstream products. The scope excludes finished and complete downstream products," says Stephen A. Jones, partner and chair of the International Trade practice group at King & Spalding, Washington, D.C., and lead counsel to the Aluminum Extrusions Fair Trade Committee.

According to Jones, the scope of the DOC investigation excluded finished merchandise, such as a curtain wall, that contains aluminum extrusions, as long as the product is fully and permanently assembled at the time of entry or is entered unassembled but contains all of the parts necessary to assemble the final finished good. 

Glass industry members report Chinese companies are beginning to take advantage of the finished merchandise provision, dumping unitized curtain wall systems into the U.S. market in much the same way they did aluminum extrusions prior to implementation of the tariffs.

"I have seen three or four Chinese manufacturers aggressively pursuing unitized [glazing projects] in the Northwestern United States," says Nick Bagatelos, president of Bagatelos Architectural Glass Systems. As an example, he cites one office tower project in San Francisco where bids from North American glaziers were 40 percent above bids from Chinese companies.

Glaziers need to be prepared for imports of completed curtain wall products, he says. The completed product exclusion in the aluminum tariffs could have a major effect on other segments of the industry too, Bagatelos predicts. "In time, this will affect aluminum window manufacturers and others as well," he says. "The commercial curtain wall glazing industry should join with representatives from the window industry and get [completed products] included in these aluminum tariffs."

Speaking on condition of anonymity, another representative from a contract glazing firm said: "These companies are selling [curtain wall] products well below our costs. We are seeing Chinese companies coming into our markets and selling products directly to the general contractors. They, in turn, are hiring small installation contractors to install the work, or in the case of one project in Las Vegas, bringing installers from China. ... They are taking jobs away from suppliers, manufacturers and, in some cases, installers."

In addition, reports are emerging of Chinese companies importing aluminum products they claim are "finished merchandise," when in fact, they are not.

"Very recently, I received a call from a curtain wall manufacturer that believes some imports are coming in claiming to be complete kits, while they are really incomplete," said a representative from a domestic extruder, who asked to remain anonymous. "The [Aluminum Extruders Council] is forming a committee to support the policing of this and is in a position now to accept any claims of circumvention," the representative said. "If you suspect something like this, go to your extruder, or directly to the AEC."

"We anticipated there would be some companies that would try to circumvent the tariffs," Crowdis says. "We're working through this now. Where we come across examples, we're trying to head those things off. This is being coordinated by the AEC."

If you find examples of companies getting around the tariffs, contact Rand Baldwin, president of the AEC, Crowdis says. "We'll go through a process of recording the incident. Additionally, [the AEC] plans to issue information about the process an individual can go through to contact customs," he says.

If customers of Chinese aluminum products are uncertain about whether their purchases are covered in the scope of the duties, they should "seek guidance before importing," Jones says. "Make sure that what's being bought is being correctly classified and declared at the time of importation. ... If you're not sure, you're taking a risk and could be in trouble later."

The ITC decision will come up for review in five years. In the meantime, a number of appeals have been filed at the United States Court of International Trade in New York, Jones says. He doesn't expect the court to reach a decision on the appeals until 2012. 

  • Custom finish concerns

    While the tariffs on Chinese aluminum imports have benefited U.S. companies producing extruded aluminum products, there has been a short-term negative effect, as "anodizing capacity is constrained," said Greg McKenna, chief product engineer, Kawneer North America, and Kevin MacDonald, director of procurement, Alcoa Building & Construction Systems, in an email. "There may be an opportunity for growth in this area of finishing," they said.

    Lloyd Talbert, president of C.R. Laurence Co., agrees. "We were importing aluminum from China, and one of our vendors was one of the favored ones [cited by the ITC]. [The tariffs] basically put them out of business," he says. "We were able to re-source locally, but I don't think the local extrusion market understands what was coming in from China: custom finishes, different finishes. The domestic market was not―and still is not―ready to service that market for us. Getting some of the custom finished [extrusions] has been difficult, so if there has been a little hiccup in our supply chain, [it can be attributed to] that. And, there are some higher costs that will be passed on to the end user."