As noted in the U.S. Energy Information Administration's recent report, primary aluminum production in the U.S. has decreased over the last 3-1/2 years by more than 50 percent. About 140,000 metric tons were being processed on a monthly basis up until the summer of 2015. Current production levels are closer to 60,000 metric tons per month, even as prices have slowly risen.
In addition to the energy demands of primary aluminum production (vs. secondary production or recycling), higher labor costs have also contributed to production declines. These higher manufacturing costs have led many plants to downsize this area of their operations. This drop in output has fueled a slow uptick in prices.
According to the U.S. Geological Survey, the vast majority of U.S. aluminum is imported from either Canada, Russia, or the United Arab Emirates. While U.S. exports have remained consistent since 2015, imports, including not only unfinished metals and alloys, but finished metal stock in the form of plates, sheets, and bars, have increased.
Lower electricity prices in Russia and Canada, driven primarily by greater access to less expensive hydroelectric power, allow smelters in these countries to offer better prices to aluminum buyers. Additional pricing pressure is felt by U.S. manufacturers due to the labor-intensive nature of primary aluminum production. Lower pay scales in China and the Middle East allow these competitors to keep prices much lower than their U.S. counterparts.
On the bright side, aluminum does not degrade as it is recycled. So secondary aluminum can be used for most applications, and a study by the Advanced Manufacturing Office shows that the secondary aluminum production process consumes six percent of the energy associated with primary aluminum production. Ideally, the use of recycled aluminum will be capable of filling any demand gaps while helping to protect against rising export totals, price increases, and manufacturing costs.