June 08, 2019 at 03:34AM
A curious thing happened to Century Aluminum after the Chicago company got the tariff it wanted on aluminum imports: Its stock tanked.
Century shares started diving once President Donald Trump proposed the 10 percent levy 15 months ago. They're now down 70 percent.
The duties encouraged Century to restart production at a Kentucky smelter and add workers. At the same time, they sparked retaliatory tariffs on scrap aluminum and fears of a broader trade war and of an economic slowdown, hammering the outlook for the nation's second-largest aluminum producer.
"The negatives associated with trade protection are trumping the positives associated with trade protection. Century is the litmus test of that," says BMO Capital Markets analyst David Gagliano.
Century's plight is a talking point for free-market economists, illustrating how even tariff proponents can get swamped amid unpredictable trade currents and protectionist policies.
Naturally, aluminum consumers—car makers, beer can users and other manufacturers—were up in arms over cost increases tariffs wrought.
"We're paying a tax on aluminum products that nobody else is paying," says Jeff Henderson, president of the Wauconda-based Aluminum Extruders Council, which represents aluminum-buying manufacturers.
In contrast, Century CEO Michael Bless emerged as the aluminum industry's loudest Made-in-USA cheerleader for tariffs, meeting with Trump at the White House, appearing on cable TV and hosting Commerce Secretary Wilbur Ross at the smelter relaunch last summer.
Century takes material known as alumina—aluminum oxide extracted from bauxite ore—and converts it into aluminum through an electrolytic process that is energy-intensive and, for plant workers, hot and often hellacious. (Bless makes a habit of citing Century's safety performance during earnings calls with analysts.)
The problem for Century: It lives and dies by the price differential between alumina and aluminum. Alumina prices last year more than doubled after the U.S. imposed sanctions on the second-largest alumina producer, a Russian firm, and a Brazilian court ordered the semi-shutdown of an alumina refinery after a contamination spill.
Prices have since eased but remain above norms. More vertically integrated aluminum producers like No. 1 Alcoa were less whipsawed and opposed the tariff.
Aluminum prices, meanwhile, remain under pressure from Chinese production, which accounts for more than half of global supply. After making noises about cutting coal-fired output for environmental reasons, China increased aluminum production by about 10 percent during the fourth quarter, says analyst John Tumazos.
U.S. aluminum volume over the last three years averaged about half of the 2014-15 level, according to U.S. Geological Survey data. Century accounts for a good chunk of that. It operates three of the five aluminum smelters left in the U.S. (and one in Iceland).
Bless promised that the tariff would create 300 jobs, and Century did add 205 last year, for a total headcount of 2,069. Century nevertheless continues to be squeezed by falling "realized prices," which were down 6 percent in the first quarter, despite a 4 percent increase in shipments.
Century will lose money this year for the fourth time in five years, according to Bloomberg data, with the net loss widening to $72 million from $48 million. Revenue last year rose 4.5 percent to $2 billion.
During a call with analysts last month, Bless cited China's "massive state subsidization" of its aluminum sector for why the "tariffs are so necessary and so appropriate" and validate "the administration's rationale behind the trade remedy." He and other executives didn't return calls seeking further comment.
Tumazos, the New Jersey-based founder of Very Independent Research, suggests that Century needs a lot more to make a difference—tariffs on the improbable order of 75 to 100 percent.
One place experiencing a difference is the Ohio River hamlet of Hawesville, Ky.
A curious thing happened to Century Aluminum after the Chicago company got the tariff it wanted on aluminum imports: Its stock tanked.
Century shares started diving once President Donald Trump proposed the 10 percent levy 15 months ago. They're now down 70 percent.
The duties encouraged Century to restart production at a Kentucky smelter and add workers. At the same time, they sparked retaliatory tariffs on scrap aluminum and fears of a broader trade war and of an economic slowdown, hammering the outlook for the nation's second-largest aluminum producer.
"The negatives associated with trade protection are trumping the positives associated with trade protection. Century is the litmus test of that," says BMO Capital Markets analyst David Gagliano.
Century's plight is a talking point for free-market economists, illustrating how even tariff proponents can get swamped amid unpredictable trade currents and protectionist policies.
Naturally, aluminum consumers—car makers, beer can users and other manufacturers—were up in arms over cost increases tariffs wrought.
"We're paying a tax on aluminum products that nobody else is paying," says Jeff Henderson, president of the Wauconda-based Aluminum Extruders Council, which represents aluminum-buying manufacturers.
In contrast, Century CEO Michael Bless emerged as the aluminum industry's loudest Made-in-USA cheerleader for tariffs, meeting with Trump at the White House, appearing on cable TV and hosting Commerce Secretary Wilbur Ross at the smelter relaunch last summer.
Century takes material known as alumina—aluminum oxide extracted from bauxite ore—and converts it into aluminum through an electrolytic process that is energy-intensive and, for plant workers, hot and often hellacious. (Bless makes a habit of citing Century's safety performance during earnings calls with analysts.)
The problem for Century: It lives and dies by the price differential between alumina and aluminum. Alumina prices last year more than doubled after the U.S. imposed sanctions on the second-largest alumina producer, a Russian firm, and a Brazilian court ordered the semi-shutdown of an alumina refinery after a contamination spill.
Prices have since eased but remain above norms. More vertically integrated aluminum producers like No. 1 Alcoa were less whipsawed and opposed the tariff.
Aluminum prices, meanwhile, remain under pressure from Chinese production, which accounts for more than half of global supply. After making noises about cutting coal-fired output for environmental reasons, China increased aluminum production by about 10 percent during the fourth quarter, says analyst John Tumazos.
U.S. aluminum volume over the last three years averaged about half of the 2014-15 level, according to U.S. Geological Survey data. Century accounts for a good chunk of that. It operates three of the five aluminum smelters left in the U.S. (and one in Iceland).
Bless promised that the tariff would create 300 jobs, and Century did add 205 last year, for a total headcount of 2,069. Century nevertheless continues to be squeezed by falling "realized prices," which were down 6 percent in the first quarter, despite a 4 percent increase in shipments.
Century will lose money this year for the fourth time in five years, according to Bloomberg data, with the net loss widening to $72 million from $48 million. Revenue last year rose 4.5 percent to $2 billion.
During a call with analysts last month, Bless cited China's "massive state subsidization" of its aluminum sector for why the "tariffs are so necessary and so appropriate" and validate "the administration's rationale behind the trade remedy." He and other executives didn't return calls seeking further comment.
Tumazos, the New Jersey-based founder of Very Independent Research, suggests that Century needs a lot more to make a difference—tariffs on the improbable order of 75 to 100 percent.
One place experiencing a difference is the Ohio River hamlet of Hawesville, Ky.