Aluminum Firms Squeezed By Surplus Russian Output

Floods of Russian aluminum are pushing the world price down

IN urgent tones, George Haymaker describes the plight of United States aluminum producers.

``Manufacturers are literally in a global fight for survival,'' he tells a group of fellow Washington State business leaders. Mr. Haymaker, chief executive officer of Kaiser Aluminum and Chemical Corporation, is referring to the problem posed by a glut of Russian-made aluminum dumped on world markets since the fall of the Soviet empire.

``Everyone ... is selling at substantially below cost,'' he says of US producers. If unaddressed, the situation ``could lead to the failure'' of many companies.

On Jan. 18, trade officials from the Commonwealth of Independent States (CIS), the European Union, the US, and other nations meet in Brussels for a third and perhaps final meeting to try to resolve the oversupply issue. The first meetings were in Moscow in October and in Washington last month.

US companies want to see the CIS agree to an export cap of 500,000 metric tons in 1994, no more than 10 percent growth in subsequent years, and a production cut of 1.1 million metric tons. Russian exports have surged from 250,000 metric tons in 1989 to around 1.6 million metric tons in 1993.

Jobs endangered

At stake are thousands of jobs in an industry that was besieged by long-term price declines even before the collapse of the Soviet Union. The US industry employs more than 100,000 people. The issue is also touchy in Russia, where aluminum exports provide hard foreign currency and jobs. Both military and civilian demand have fallen back.

American producers say Russian production grew not in response to market forces but to support the Soviet military, and that production remains heavily subsidized.

Industry leaders call for stimulating Russian domestic demand for aluminum and improving environmental performance. ``The CIS producers do not even meet their own environmental standards and their plants need to be improved so they are not a hazard to the health of their workers and the citizens of their communities,'' says Richard Holder, chief executive of Reynolds Metals Company and outgoing chairman of the Aluminum Association in Washington.

``It would be very easy for us to try very hard to be as protectionist as possible,'' Haymaker says. Instead, the industry is seeking scaled down exports so the worldwide industry can make the needed long-term adjustment.

US producers cut production by about 20 percent last year and hope to avoid further significant cutbacks, notes Yvonne Folkerts, spokeswoman for the Aluminum Association.

``We will come away with some sort of international agreement,'' Haymaker predicts.

While saying the industry is not looking for government aid, he says steps are also necessary at the state and federal level - to keep taxes and regulations from hindering the industry's competitiveness.

Haymaker cites examples of problems that Kaiser Aluminum faces in the Northwest, which is home to three plants owned by the Houston-based company (and about 40 percent of US aluminum production):

* ``It will cost us $15 million to control emissions'' of dust near Spokane, Wash., to comply with new federal requirements, even though it is ``clearly not a health hazard and no one argues that it is,'' he says.

* The company must now pay the state's ``business and occupation'' taxes on plant-repair expenses, which formerly had not been treated as a manufacturing-process expense. With one plant cutting costs by 25 percent, ``the state must be just as ... creative as we have been.''

* Local property taxes for two plants near Spokane have soared over the past two years, despite worsening industry conditions that have reduced plant values.

* Finally, the region faces a battle over how to protect dwindling salmon runs in Northwest rivers. Environmentalists are urging drawdowns of water levels at dams during critical times to allow salmon populations to be restored, a move that would raise electricity rates for the energy-intensive aluminum industry.

Already the lack of water led to a 25-percent electrical output cut last year, and ``we've just had an 18-percent rate increase,'' Haymaker says. If new policies further raise energy costs, it ``could well obliterate the Northwest aluminum industry,'' he predicts. In Washington, where most of the region's aluminum manufacturers are located, industry employment has fallen from 13,000 in 1990 to around 11,000.

Haymaker acknowledges the need to do something to restore salmon populations but urges that measures be based on ``good science.''

Environmentalists argue that the current strategy of using barges to carry fish around dams has clearly failed. Debate now is centered on how large water drawdowns would need to be.

You've read  of  free articles. Subscribe to continue.