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1 1 (March 11, 2021)

handle is hein.crs/govecoy0001 and id is 1 raw text is: Congressional Research Service 0uuanunuanu March 11, 2021 U.S. Aluminum Manufacturing: National Security and Tariffs Aluminum-a lightweight, ductile, malleable, and corrosion-resistant metal-is increasingly used in many industrial and technological applications, including in products used for national defense and lower emission vehicles. In Congress, views on the aluminum industry generally diverge between those who support policies to increase domestic production for national security and economic reasons and others who argue that such policies may raise aluminum prices and harm aluminum-consuming sectors (e.g., transportation equipment, containers and packaging, and construction). Domestic Aluminum Manufacturing Aluminum is manufactured through two distinct processes (see Figure 1). Primary aluminum production consists of mining bauxite, refining it to produce alumina, then smelting it to yield aluminum. Secondary aluminum derives from recycled scrap metal. Sources of the scrap are (1) old scrap, recovered from finished products such as used aluminum cans, auto parts, and aircraft; and (2) new scrap, material left over from processing aluminum into consumer or industrial products. Figure I. Aluminum Sources and Uses Source: Figure adapted by CRS from NERA Economic Consulting, Impacts of Potential Aluminum Tariffs on the U.S. Economy, June 2017. Secondary aluminum can be substituted for primary aluminum in most uses; however, primary aluminum is favored in applications with high quality and consistency requirements, such as electronics and aerospace manufacturing. A few smelters worldwide produce primary aluminum of sufficient purity for use in military aircraft, as well as in lightweight armor plating found in many defense ground and weapon systems. According to the Department of Defense (DOD), military requirements for aluminum represent about 3% of total U.S. consumption of aluminum. In 2020, U.S. production of primary aluminum totaled 1.0 million metric tons, reports the U.S. Geological Survey (USGS), well below peak domestic production of 4.7 million metric tons in 1980. The United States was the world's top producer through 2000. By 2020, the United States accounted for 1.5% of the world's primary aluminum production. Global overcapacity, driven by certain foreign government subsidies-particularly by China-has reduced the global price of aluminum. After China, the world's largest producers of primary aluminum in 2020 were India, Russia, Canada, and the United Arab Emirates, ranked in order. The United States was ninth. At year-end 2020, three companies-Alcoa, Century Aluminum, and Magnitude 7 Metals-operated six primary aluminum smelters in the United States, compared to five companies operating nine primary smelters domestically in 2010. Primary smelters operated at about 49% capacity in 2020, down from 60% in 2019. U.S. secondary aluminum production was 3.2 million metric tons in 2020, over three times U.S. primary aluminum production. China was the world's largest producer of secondary aluminum in 2019, followed by the United States and Japan. Factors Affecting U.S. Production In addition to imports and global overcapacity, high domestic costs depress U.S. production of primary aluminum. Comparatively high electricity costs in the United States, where electricity can account for up to 40% of the cost of primary aluminum production, encourages firms to locate smelters in countries such as Canada and Iceland with lower electricity costs. Exchange rates and labor costs may also adversely affect U.S. smelter production. U.S. primary smelters also use older, less energy-efficient technologies than newer plants in the Middle East and Asia. The newest U.S. primary smelter opened in 1980. Primary smelting also involves large capital investments: a new smelter may represent at least a $2 billion investment. In recent years, several U.S. primary aluminum production facilities have reduced production or closed partly due to industry consolidation. CRS is not aware of any aluminum producers having announced plans to build new primary smelters in the United States. Production of secondary aluminum is usually more economically attractive, as the capital cost of a secondary smelter is much lower than for a primary aluminum smelter. The Energy Information Administration estimates secondary smelters use 6% of the energy required by primary smelters. One company reportedly plans to build a new rolling mill in the United States for secondary aluminum. U.S. Demand for Aluminum Products The economic downturn in 2020 caused by the COVID-19 pandemic contributed to shut downs or reduced production at the facilities of U.S. aluminum-consuming industries, reducing U.S. consumption of aluminum to 2.9 million metric tons, down 41% from 2018, according to USGS. Likewise, imports of primary aluminum shrank to 3.2 million metric tons in 2020, a drop of 42% from 2018. More than two-thirds of U.S. primary aluminum imports in 2020 were from Canada, where Alcoa operates three primary aluminum smelters, followed by the United Arab Emirates, Argentina, and Russia. The United States imports tps://crsreports.cong ress.gc

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