Survey: competitive markets

Summary of the case study on the German aluminium downstream promoted by FACE and carried out by FAIReconomics magazine together with Prof. Ingo Rollwagen - PART 2

Interesting results emerged from the competitor threat survey; for two-thirds of respondents, the threat comes from China and India (38 companies), only one-sixth do not see these countries as a challenge, while almost twenty percent take a neutral stance. In the past, support for the aluminum industry has often resulted in the regulation of trade regulations at the European level, with import duties being the main measure of any EU industrial policy.
As such, national administrations usually followed the EU's lead: in Germany's case, national measures were primarily aimed at supporting existing upstream industries, i.e., aluminum producers and non-aluminum processors, by reducing their energy costs as part of a broader regulatory intervention for energy-intensive sectors. The priority of European and German policy is, and always has been, focused on the steel industry. The aluminum processing industry, however, has received little attention, regardless of its potential for a circular and low-carbon economy. As a result, the interests of these aluminum companies have often been overlooked.
In addition, the aluminum industry and its associated aluminum processing companies have recently been at the center of an international debate over protectionist measures. Public attention has focused primarily on aluminum companies rather than the downstream sector, i.e., the companies that process the raw aluminum produced into a wide range of products. However, given the nonchalance of decision makers on aluminum policies, it is surprising that nearly 55% of companies surveyed have heard of the Green Deal, while 45% remain unaware of it. It appears that there is room for improvement regarding policy information and communication within the aluminum industry. As a result, it is not surprising that the majority of companies surveyed had not yet heard of the EU recovery plan; nearly three-quarters of all companies surveyed (44) had not heard of it and only one-quarter said they had.
A simple solution in the short to medium term: the elimination of import duties in the EU. Among the various recommendations, the study calls, in particular, for the removal of import duties on raw aluminum as an easy-to-implement and immediately available measure that would rapidly reduce downstream production costs and support the competitiveness of SMEs in European and international markets. The idea of eliminating the EU import duty on raw aluminum was already supported in an Ecorys analysis done in the early 2000s by Ecorys, and in particular by two studies conducted by LUISS University of Rome in 2015 and 2019. It was then estimated that the total cumulative additional costs incurred by the EU aluminum downstream industry, net of in-house processing, ranged from €529 million to €1 billion per year (for the period 2000-2017). Initially designed to protect the European upstream sector from international competition, the EU tariff ultimately failed to prevent smelters from relocating to countries with lower energy and labor costs, as well as more lenient environmental regulations.
Worse, import tariffs on raw aluminum have put upward pressure on prices for all types of aluminum, further exacerbating cost distortions for downstream EU processors. This trend is likely to increase as climate change, rising energy prices, the consequences of the Covid-19 pandemic and the European Green Deal create deep wounds in the European economy. The impact of tariffs is all the more significant for the EU's downstream sector, as it represents a significant artificial and additional cost, and acts as a hidden subsidy for aluminum producers inside and outside the EU. Overall, the FAIReconomics paper further expands the conclusion reached by the LUISS studies: the duty on primary aluminum penalizes the downstream segment - where SMEs typically operate through high value-added production and innovation - and favors upstream crude producers.
For the German market in particular, the study showed that the purchase of aluminum represents a considerable share of the turnover of many companies: - 27 Downstream processors, producers of semi-finished products, are highly dependent on economic conditions and the physical availability of raw aluminum. Global price fluctuations, closely linked to London Metal Exchange (LME) quotations, and local supply and demand conditions have a strong influence on downstream activities and their competitiveness.
The important study conducted by FAIReconomics and Prof. Ingo Rollwagen highlights once again the damage caused to the competitiveness of the entire European aluminium value chain by the absurd 6% tariff on EU imports of raw aluminium by Mario Conserva, Secretary General of FACE.
"The FAIReconomics paper confirms the findings and policy recommendations of two studies conducted in 2015 and 2019 by LUISS University on the competitiveness of downstream aluminum in the EU, showing that European duties on imported raw aluminum actually result in a market premium for all raw aluminum purchases, regardless of the origin of the metal. This opaque mechanism, which FACE has always denounced as a hidden subsidy for European primary aluminum producers, generates an artificial additional cost estimated at between €70 and €85 per ton of aluminum purchased for downstream SMEs, which represent over 90% of the workforce in the EU aluminum industry. In an industry with such low margins this is an important burden, estimated between 5.6 and 15.5 billion euros over the period 2002-2013, (up to 18 billion euros, according to the LUISS study, for the period 2000-2017), i.e. about 2% of the annual turnover of the entire supply chain. Another extraordinarily interesting fact that emerged from the FAIReconomics study is the lack of knowledge on the part of downstream companies of the excess cost and damage inflicted on them by the 6% tariff effect on the price structure of raw materials: this clearly shows that the European and national associations of the aluminum industry have failed to adequately and correctly address an obvious and heavy situation of national and international disadvantage for the aluminum value chain". 

Share this news