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Supply Chain News: US Aluminum Suppliers Milking Tariffs to Raise Prices, Molson Coors Executive Says

 

Price Gouging, Keeping Metal off the Market, Inexplicable Hikes in Transport Costs – Vice Chairman Attacks Alcoa, Glencore and More

 

July 30, 2019
SCDigest Editorial Staff

Tariffs on some foreign goods and materials, predominantly of course Chinese-made goods but also broad-based tariffs on some metal imports, were designed in theory to drive production back to US factories.

It isn't always working out that way, that's for sure.

Supply Chain Digest Says...

"In the past six months we asked each US supplier, separately, for better rates and they flatly refused," Coors adds.

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Case in point: A recent guest column in the Wall Street Journal by Pete Coors, vice chairman of beer maker Molson Coors, in which he rather amazingly calls out several players in the aluminum supply chain for using the tariff umbrella basically to price gouge their customers.

Coors begins by noting President Trump has said there is an easy way to avoid the impact of tariffs: buy from US suppliers.

"Unfortunately, this isn't quite true for anyone buying aluminum," Coors writes. "Thanks to manipulative business practices that appear to permeate the industry, it doesn't matter if you buy from a tariffed company or an American one - you'll still pay the same high price."

Virtually all aluminum sold in the US is priced as if it were tariffed, even though much of it is not, especially after the Trump administration recently lifted tariffs on imports from Canada and Mexico. With that move, 77% of the imported aluminum that US companies buy is free from tariffs - yet the metal is still is priced higher as if it were tariffed, Coors says.

Coors says his company pays almost 20% more for the aluminum in its cans than it did a year ago. Which is odd, because the base price for primary aluminum as set by the London Metal Exchange is down 15% in the year since the aluminum tariffs took hold.

How can this be? "Because aluminum suppliers and traders are taking advantage of the pricing umbrella that the tariffs put in place," Coors alleges. He says that as tariffs raise prices for part of the industry, the remaining firms making aluminum in the US or sourcing it from exempt countries are under less competitive pressure to keep their prices low.

He further alleges that "Alcoa and other aluminum giants have the market power to raise prices above the market rate. The less transparent and competitive a market is, the more firms can charge."

Suppliers in the highly concentrated aluminum sector simply increase prices to match tariff prices, Coors adds.

Small companies that use a lot of aluminum are likely taking big his to their bottom lines due to these artificially high prices.

But "even a company the size of Molson Coors is powerless to obtain better prices," Pete Coors says.

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"In the past six months we asked each US supplier, separately, for better rates and they flatly refused," Coors adds. "It was as if they were singing in unison."

He cites data from Harbor Aluminum Intelligence finding that US companies have had to pay an additional $2 billion in higher aluminum costs since the tariffs went into effect.

Research firm Harbor also finds that suppliers have kept half a year's supply of aluminum off the market, also contributing to keeping prices artificially high.

And Coors says Alcoa is taking advantage of tariff exemptions by moving some "can sheet" production to Saudi Arabia over the last year. The company then ships the can sheet back to the US tariff-free under an exemption granted by Commerce Secretary Wilbur Ross. Yet it still prices the metal Coors purchases as if it were tariffed.

"It now is clear that government intervention and oversight are necessary, "Coors says in conclusion. "Molson Coors urges the president to investigate the aluminum industry and the conduct of its biggest actors."

Quite a story indeed.

What's your take on Coors and the aluminum market? Let us know your thoughts at the Feedback section below.

 

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