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Trade war

Japan aluminum makers boost US output as tariffs roil market

Steelmakers on edge as Washington slow-walks on levy waivers

Automotive-use steel and aluminum products have been subject to additional U.S. tariffs since last year.    © Reuters

TOKYO -- As additional tariffs on aluminum imports keep Chinese products out of the American market, Japanese metal manufacturers are stepping up U.S. production to capitalize on rising prices caused by tight supply conditions.

Kobe Steel plans to spend about 5 billion yen ($45.3 million) to double monthly production capacity to 1,000 tons at a Kentucky plant that produces aluminum parts used in car bumpers and other automotive applications. It is also considering building a new plant to manufacture aluminum sheet for auto bodies. If it does, its total investment could reach 100 billion yen.

Aluminum specialist UACJ decided last year to dissolve a struggling aluminum parts joint venture in the U.S. with a European partner, but it is now considering a solo foray on the back of a strong market. The company has invested 18 billion yen in a Kentucky factory to increase production of intermediate components, which it is thinking of processing into auto parts as it did under the joint venture.

These moves come amid an increase in U.S. aluminum prices after the administration of U.S. President Donald Trump imposed a 10% duty on the metal in March 2018, along with a 25% steel tariff. The levy spurred a plunge in aluminum imports, particularly from China and Russia, leading to tighter supply.

Premiums paid by U.S. buyers for aluminum compared with international prices surged 90% in February from a year earlier. Prices also rose for Japanese-made aluminum products, which are in high demand in the auto industry. And given that aluminum is seeing broader use in auto parts and chassis to reduce weight and improve fuel efficiency, demand looks likely to grow further.

While the U.S. government has granted about 80% of exemption requests for Japanese aluminum products, Kobe Steel and UACJ are ramping up local production there in light of other factors, such as transportation costs. UACJ expects its U.S. output of automotive aluminum sheet to exceed 1 million tons in 2020, up about 50% from 2017 levels.

The outlook for steelmakers is more mixed. Japan's steel industry was relatively sanguine about the tariffs at first. The U.S. is a relatively small market for Japanese steel, buying just 2% of the country's total output. These exports consist mainly of high-performance products such as railway tracks and auto parts that cannot be sourced in America, making them natural candidates for tariff exemption requests.

But in the year since the duties took effect, 60% of waiver applications either have been denied or have yet to be processed.

A Nippon Steel executive said that requests are being approved "gradually." But as long as applications remain in limbo, buyers still need to pay the tariff.

The levy has driven a rise in steel product prices, with U.S. prices for hot-rolled coil topping $1,000 per ton last July, according to the SteelBenchmarker pricing system. American steelmakers are profiting handsomely, fueling demand for investment in additional production.

Typically, Japanese steelmakers export high-end materials to the U.S. and process them through joint ventures with American peers for sale to auto or parts manufacturers. If the tariff drives a shift toward producing high-performance steel products in the U.S., Japanese companies could lose their competitive edge.

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