Remaining US smelting capacity is at risk from a combination of older technology and uncompetitive power costs. While US trade policies saw the restart of some capacity, the long-term future of the US domestic smelting industry remains uncertain.

The Current Situation for US Primary Aluminium

US primary aluminium production has been in decline for decades. Rising power costs have made it increasingly difficult for US producers operating largely outdated reduction technology to compete with semi-finished imports and a rising secondary aluminium supply. There have been limited upgrade or replacement programmes initiated for curtailed primary smelters within the US over this time.

Following an election campaign promising the restoration and strengthening of US manufacturing capability and subsequent implementation of protectionist policies affecting aluminium imports, some smelting capacity was restarted. Though some of this has more recently been undone.

Both Alcoa’s Warrick and Century Aluminum’s Hawesville smelters announced capacity curtailments accounting for ~300ktpa of production. Demand will continue to significantly exceed supply in the US.

While some US demand will be met by rising domestic scrap recovery and re-use, the country will continue to rely on imports leaving downstream producers exposed to domestic price impacts of import tariffs.

Historical US Aluminium

In 1945, at the end of World War II, the United States accounted for over half the global production of primary aluminium, producing 450kt after a wartime peak of 834kt in 1943. Total US production volume peaked in 1980 at 4.7Mt but had fallen to ~30% as a proportion of global production.

Since this peak, production has continued declining, reaching ~800kt in 2017—equivalent to less than 2% of global production. These reductions have followed the large increases in Chinese capacity and the development of smelters in regions such as the Middle East which benefit from lower energy costs and utilising much more recent and energy-efficient technology.

The number of operational domestic smelters has fallen from 23 sites in 1993 to essentially eight in 2022, however, this includes the Intalco and Wenatchee smelters both of which Alcoa has announced the closure of but are yet to be demolished.

Hope is currently still held for a restart of the 280ktpa Intalco smelter should a viable green-power purchase agreement be secured—to secure a place in the Energy Transition—potentially under a different owner.

Since 2012, primary aluminium production in the US has continued despite demand increasing. This has created a loss in production self-sufficiency and intensified reliance on imports of primary metal, primarily from Canada but increasingly Russia—a currently risky exposure, but a source of green aluminium—and the UAE, all of which are currently impacted by the import tariffs.

Despite demand for aluminium in the US continuing to rise, remaining smelters continue to suffer from a combination of old, less-efficient technology and ever-increasing power supply costs.

The global energy crisis is currently exacerbating the situation and efforts to decarbonise will see several smelters—particularly those located in the Midwest and South of the country—face further struggles given their reliance on coal-powered electricity.

The National Security Angle

The 2016 electoral campaign of the US President included promises to resurrect the domestic manufacturing industries and commitments to policies designed to overcome competition from allegedly unfair imports.

US Government departments enquired into dumping and anti-competitive practices in the global aluminium and steel industries—such as current export tariff levels and subsidies—with an unstated focus on China. Specifically, the President requested the US Department of Commerce to investigate aluminium imports and their potential to pose a threat to national security.

With an affirmative finding, the President imposed tariffs of 10% on aluminium imports, including to the US’s largest supplier, Canada. The initial imposition of these tariffs saw Century Aluminium restart idled production at its 244ktpa Hawesville smelter, Alcoa restart capacity at the 270ktpa Warrick smelter and new owner Magnitude 7 Metals restart capacity at the 270ktpa New Madrid smelter it had purchased in 2016.

Energy costs and US Smelter Viability

Smelters in the US were historically developed in regions with access to cheap power, such as those near hydroelectric sources in the Pacific Northwest and New York State and coal power in the Appalachian region.

Within the US, the emergence of private monopoly power suppliers in many states lead to increased power tariffs and supply costs, which, combined with comparatively less-efficient reduction technology, has rendered many smelters in the country globally uncompetitive.

The government initiatives encouraging the restart of available capacity have resulted in the additional aluminium production being comparatively expensive and have seen price rises for domestic customers and consumers further down the supply chain, including the US Government—a large consumer of aluminium and its products.

While developed with cutting-edge technology of their time, there are no US smelters operating at an amperage of over 300kA, with limited capacity operating over 200kA.

Comparatively, Chinese smelters are predominantly less than 10 years old with limited capacity under 300kA and undertake progressive replacement of older capacity with more modern technology—now exceeding 500kA. Integrating large captive power sources further improves the cost position of Chinese smelters against the US.

Energy Key to Capacity Development

In the long term, the efficiency and environmental benefits of constructing modern cell technology to replace outdated installations are likely to be more beneficial than the potentially expensive and short-lived upgrade of existing cells. In either case, energy supply costs are critical.

Hydroelectric power sources will continue to be more favourable in terms of generated electricity cost as well as community environmental perceptions and global shifts toward decarbonisation.

Focus may turn to the generation of electricity from cheap gas from more recent shale extraction developments or acceptance of developing newer and more-efficient dedicated power supplies near coal basins for cheap electricity generation—however, this shift would be muted by the Green Transition.

The US has committed to reach net-zero by 2050 and has submitted an NDC 2030 target of reducing emissions 50-52% below 2005 levels. The target is economy wide, covering all sectors, and all greenhouse gases. Under the November 2021 administration’s Infrastructure Investment and Jobs Act’ includes investments in EV charging infrastructure, upgrading the power grid, and improving energy efficiency and electrification in buildings—all of which will drive further demand for aluminium.

However, additional and complementary policies including the ‘Build Back Better’ bill are likely to be held up in the Senate—and likely to be scaled down to secure passage. A recent Supreme Court ruling also places the ability of the federal government to force emissions reduction efforts at risk.

Over 2021, the US increased total CO2 equivalent emissions by 6.2% to 5.2Gt. This has come off a covid-induced economic slowdown which saw a drop over 2020—meeting the US’s targets under the Copenhagen Accord. The 2021 bounce back sees emissions still below 2019 levels.

To meet its decarbonisation commitments, any greenfield smelter development in the US—however unlikely—is expected to need to be able to source its power requirements from renewable sources. As the world undertakes its decarbonisation efforts, developments which increase emissions will struggle to be approved.

Further, the customer base looking to lower emission intensity of their value chain is forcing changes. demand for ‘green’ aluminium. As previously mentioned, any potential restart of Intalco will necessitate securing power from renewable sources. It could also see an increased focussed on the development of recycling capacity and increased domestic aluminium from scrap sources as opposed to new primary capacity.

Cheap supply, or domestic production

While the US’ protectionist measures provided some incentive to restart and modernise limited domestic capacity, little has been seen of any meaningful progress towards developing significant new primary production capacity in the US. Though the impost of tariffs has seen local prices increase, to the detriment of downstream producers.

Currently, the largest sources of primary aluminium imports to the US are provided by hydroelectric-powered smelters in Canada. These projects, including the recent modernisation of Rio Tinto’s Kitimat smelter, the planned, but yet to be undertaken replacement of older capacity with ultra-modern

AP60 cells at Rio Tinto’s Arvida smelter and the potential expansion of the Alouette smelter, may provide a reliable, close proximity supply of primary aluminium to help satisfy the US’ demand.

To secure a viable domestic aluminium smelting industry in the US, major upgrades of the existing reduction cells are considered unlikely. These would not necessarily create long-term competitive installations given the established global technology footprint.

Further, any development of a greenfield smelter within the US, which would consider value chain integration, availability of low-cost and green energy sources as well as adequacy of scale for global competitiveness, may come at a potentially prohibitive capital cost.

With close and reliable supply from neighbouring Canada, including a higher likelihood of hydro-powered expansion opportunities and a globally well-supplied aluminium market with more-cost-effective short- and medium-term projects already in progress, imported aluminium may prove more cost effective in the short-term.

Development of new capacity in the US is only considered a long-term prospect, potentially incentivised on National Security grounds.