Aluminum is interesting. It's sort of a way to do energy arbitrage, since its production needs an immense amount of electricity to reduce bauxite into usable aluminum. Iceland has sufficient surplus energy to "export" electricity in the form of refined aluminum, making them a big player in the global aluminum trade.
It seems pretty horrible for the environment for a country to be using coal-powered electricity for aluminum smelting. If a global carbon tax existed, aluminum production would correctly be even more skewed toward counties with surplus renewable energy (iceland, canada, norway, brazil)
This article points out that US plants in places where there is cheap hydro power will stay open. Sounds like at least in the US the market for aluminum is working as it should.
It’s horrible to be using coal-powered electricity at all, and especially for anything that can be produced with “free” surplus electricity and then stored indefinitely and shipped relatively cheaply.
We can all only hope that prices of wind/solar continue to drop, and governments around the world – especially China, the US, and India – have enough governmental/institutional strength to overcome corporate and government corruption and rein in their use of coal power in the coming years.
It is directly driven by the cost of energy, as tomkinstinch brought up. China burns an incredible amount of coal for power, which brings the cost of energy down at the price of huge amounts of pollution.
As China and other places green, you can expect the price of aluminum to rise and production to float to other places.
China is pretty interesting in this regard. While they really do burn incredible amounts of coal, they are also worlds biggest producers of photovoltaic and wind energy and strife for a renewable share of 16% by 2020. https://en.wikipedia.org/wiki/Energy_policy_of_China#Renewab...
By the time China roars back (years, at least), coal won't be economically viable (as long as wind and solar manufacturers continue to manufacture at full tilt).
> As China and other places green, you can expect the price of aluminum to rise and production to float to other places.
It's the opposite. As green energy gets cheaper than the traditional sources (subsidized or not), only then you get a massive shift to the green energy. Until then only very rich countries can subsidize enough green energy to make any meaningful changes.
I think there's a shared understanding about the dangers of coal. "Is it worth it?" isn't just a pure economic play at some point. Or, if you'd rather, you can't continue to externalize costs that come from using dirty coal.
I would guess that the cost of bringing an aluminium smelting plant online is quite a barrier to entry.
Your competitors will already have moved along the cost curve, gradually replacing equipment as they green.
On top of the capital investment, margins will be thin in a commodity industry too.
A new entrant in this future scenario will basically be saving the expense of shipping. If right now $1500 + shipping from China beats out $1800 made in the USA that means a capital investment for 10-15% margin.
I've never understood how the Asian countries that don't really have that many natural resources[1], could out pace American manufacturing. Do we seriously ship scrap metal over there to them just to have it shipped back to us in a different form?? Sounds like a horrible waste of resources (fuel, oil, ect)...
They don't actually outpace American manufacturing. America focuses on low volume extremely high priced manufacturing, China and other countries focus on high volume low cost (i.e. low skill) manufacturing.
For the most part this is because wages are higher in the US, so you need to make more expensive stuff to make it worth it.
I'm not so sure about the high volume low cost part, considering that iPhones, Macs and all kinds of modern consumer electronics we love to use are imported from China.
I'm sure about the high volume low cost part, even for iPhones, Macs and all kinds of modern consumer electronics. The Chinese companies assembling these are making pennies on the dollar compared to what the companies that design and market them sell them for. For example, it may cost Apple around $30 to manufacture and build an iPhone in China [1]
China's population is ~4x that of the United States, so all else equal they'd have ~4x as much of everything, manufacturing included. In reality, the US has slightly more total manufacturing output than China does, because of its higher level of economic development. The strong trade ties between the two countries mean that Chinese firms will sometimes outcompete American firms, and vise versa; we just don't hear much about it when it's the other way around.
After several unsuccessful attempts to buy struggling European automakers in 2009, such as Saab, Volvo, and Opel as well as technology from the American Chrysler, BAIC fulfilled its aim of obtaining valuable Western technology that same year purchasing technology from a former unit of General Motors, Saab Automobile. This allows it to produce older Saab models (but not brand them as Saabs[citation needed]) for sale in China.
Amusingly most chopsticks used in China are made in the US, though that's more about having the right climate to grow good wood than about manufacturing capability.
"Government subsidies are taking as much as $200 per tonne off the cost of production. Chinese Governments subsidize the local industry in order to protect jobs, and to maintain a level of “social order”. http://blog.alcircle.com/2013/03/04/the-secret-of-chinese-al...
Shipping is very cheap. Smelting (aluminum) is expensive.
I'm going to guess that most scrap is recycled locally, but shipping bauxite to China and buying back bulk aluminum is cheaper than doing it locally. Is recycling done this way also?
I've begun strongly suspecting that a major element of what China's been exporting, however, has been its environment as dumping ground.
Much of the growth of China's economy has come since 2000, and the environmental toil's been tremendous. Where earlier extractive-resource countries have raped their mineral resources, what China's done is to rape its atmosphere, waters, land, etc. Coal-fired electricity, heat, and industry, rare earths extraction (the "rare" has more to do with their concentration in ores -- massive amounts of overburden must e processed), chemical contamination, etc.
Makes you wonder how long they can keep this going.
James Lovelock described what humans do as a system of producing an enormous amount of garbage to create artifacts (many of which are ultimately garbage too.)
There is a lot of applause given to fiat currencies, but when prices are continuously appreciating it becomes extremely difficult to determine if the underlying factors are from sustainable demand (as opposed to software and information tech where we have strong deflationary pressure.) You can borrow money, and you just need to earn enough to cover the debt. You can also just borrow more.
The creating-crap thing, I suspect, intersects with issues over equality and minimum income.
There are people who, quite literally, would do more good to the world not working than working. Especially those producing products or services which are net negative. I started noting this with the growth in products that seemed aimed entirely being disposable, and retailer's view of them only as vehicles for moving dollars: retail exists less to move goods than to move money through the economy. Work of many sorts exists as much as a workfactor activity for reallocating wealth.
Other fair means of allocating both productive activity and income could avoid much of this.
1 mostly aluminium Boeing 747 is worth the same as 200,000 tons of processed aluminium.
The US imbues large technological value to an otherwise raw product. You pay for their knowledge more than the raw product. The benefit the US enjoys is the marginal cost of another plane is much lower than the marginal cost of producing raw aluminium.
I'm not sure there are necessarily broad conclusions to be made from this, but what strikes me is the thought that in the long run knowledge diffuses everywhere and the economic advantages may get reduced down to physical constraints on energy and materials. In that case, nations that vertically integrate with their own key industries may be the most independent. Of course, it's arguable which industries are key.
Some independence is a good thing as insurance for the case of a trade (or actual) war and such, but beyond that, there is little reason to pursue it -- after all the most independent nation out there is probably north korea :)
North Korea seems periodically dependent on food aid for its population precisely because of the inability to sustain or develop adequate internal capacity.
Can you provide examples of it actually helping China?
Their supposed copycat jet fighter has gone nowhere so far. There's zero evidence they have the ability to bring it to production and deployment.
There are several countries that could build a 737 clone.
Cisco continues to dominate routers, despite China's attempt to steal from them and clone their products.
Windows, iOS, Android dominate operating systems, despite China's continued attempt to build a serious home-grown operating system.
Russia has been stealing US industrial and military secrets for 60 years. It also didn't do much for them. There is a lot more to it than just stealing trade secrets - that's the easy part.
If it's cheaper to out source it American companies will. Interestingly they do this to recycle paper because its really toxic to do so. Never understood why, pine trees are a fairly renewable resource. In Georgia we have plenty of pine trees that grow pretty fast and a forest can be replanted fairly easily.
Americans simply use too much paper...
I seldomly see paper wrapped straws or more than one roll of toilet paper per cell in any other countries I've been to. Even mcdonald in other country don't use that much paper as we do here.
Right, but I think using paper instead of plastic wrappers is more environmentally friendly. Plastic is made from byproducts of oil refining. Its really nasty stuff that doesnt biodegrade as easy as paper. Paper is renewable and it also helps the environment by taking out CO2 (trees).
Fun fact, Ted's Montana Grill actually uses paper straws as a conservation effort IIRC. They can get soggy but it is something unique I haven't seen before.
Also wrapping straws in something is a health code issue. Some places even in the US do no require it to be done.
So it's not wrapped at all. Regarding the health issue you mentioned, if people don't mind drinking from glass in a restaurant, why do they mind drinking from unwrapped straws? I believe unwrapped straws in a container is at least as clean as glass from any bar.
Part of China is closing capacity too: 2 million tons, more than the entire US capacity. It's just that another part of China is still adding capacity, because
"Inside China, the growth of new smelter capacity has been in the northwest, often based on captive, low-cost coal deposits for power generation and utilizing the latest smelter technology that, combined with large economies of scale, has made these Chinese smelters some of the lowest cost of production in the world."
China also has a 15% export tax to discourage export of primary aluminum:
"The Chinese government, which relies heavily on imported bauxite, has long applied export taxes on primary aluminum as part of a broader strategy to discourage exports of energy-intensive products and emphasize sustainable, quality growth"
http://www.aluminum.org/news/aluminum-association-concerned-...
While it can be worked around by exporting semi-finished products instead, it must be doing something. Otherwise the US Aluminum Association won't be so concerned about its removal.
Any chance demand from domestic US automakers would increase enough to stem US aluminum industry losses? With higher MPG CAFE fleet requirements, I'd assume a surge in demand for aluminum for vehicle unibodies (which is stronger and lighter than steel).
Also, I'd be curious if aluminum plants might start buying renewables with locked in rates to compete against foreign firms who have access to cheaper energy (utility scale solar is already down to 4 cents/kwh).
The aluminum market is global and generally thought to have too much capacity. Even if US aluminum demand increased dramatically it would unlikely help the US industry much because production cost are cheaper elsewhere.
Yep, exactly. Carbon fiber is great for aircraft, not so good for cars.
Boeing 787 Wind Failure Test: EDIT: Link removed due to comment advising there was malware. Google for "boeing wing stress test" to find a Youtube video
The "carbotanium" (bonded titanium and carbon composite) of the Pagani Huayra is supposed to get around some of the problems of using carbon composites in a car.
Here's some good news about somebody doing something important more efficiently than their competitors and gaining economic benefits from that. But many comments seem to be suggesting it's a bad thing because of environmental costs.
When US car companies started to recover from the recession, were people equally critical and complaining that the US's economic recovery was coming at the expense of the environment? That they should try to continue underperforming at manufacturing? Afterall, a world with less competition between car makers is surely a more environmentally friendly one. Were people complaining that GM should have been allowed to fail not because it was uncompetitive but because it was damaging the environment by making bigger cars than Japanese rivals? It seems like a double standard of people with a protectionist attitude that's pro-American-corporation and anti-American-consumer.
I can't speak for anyone else, however I can say that the reason that I, as an American, do not own an American made car (but I do own a car made overseas) is because I have no respect for the quality of engineering, workmanship, or value that those cars offered at the time I purchased.
Event today, the only American car I can truly be proud of is a Tesla; and that is because in it I see quality engineering, workmanship, and, even as expensive as they are, value. Literally the only poor things I've ever heard of relating to Tesla's involve rare owner error, more frequently error on the part of others on the highway, and occasionally a design flaw that the company owns up to and fixes.
I think most people who complain that X (car company) or Y (big bank) should have been allowed to fail (controlled orderly liquidation) see it as a lost opportunity for something smaller, nimble, and filled with the vitality of new ideas to take it's place. Being allowed to fail is the fire of the ecosystem of industry; in it's wake the green sprouts of a new better thing are possible.
I thought we would become more competitive with the drop in natural gas prices. Is it that the strong dollar has been greater than the energy price drop?
Destroying industries one by one - the coolest thing about it is they are only doing it to improve the standard of living for their people - having a global monopoly is not the #1 reason.
Like the rest of the world's economy wont matter and are like small planets.
To be fair, there is a positive side of China being the "World's Factory". For example, without the inexpensive components from Chinese factories, Wind/Solar Power won't be as affordable as now. Also I suspect without China mobile phones especially Android phones would be much more expensive.
Cheap Chinese labor is used because it is cheap. In terms of prices, we would be better off if things were more integrated and automated.
We rely on gigantic volumes to drive prices down. There is no reason why automation couldn't drive the prices down in the same way on much lower volumes.
A country having a trade partner that can provide goods for half the price, is equivalent to having a machine that can manufacture the same goods for half the price, except the former requires no capital investment. As the trade partner gains wealth from providing that good, the price will rise and incentivise investment into automation technologies.
Things will be better off when things are more integrated and automated.
That is true because the country can delay the investment into increasing capital, which it can invest in another industry, and while that's happening, the trade partner will have increased income in the mean time.
Let's take an example to the extreme.
U.S. can spend 20% of it's GDP over the next 10 years building Strong A.I., but it will probably be better off to import human-level intelligence over the internet from low income countries, and gradually ramp up it's investment into Strong A.I. as the cost of importing intelligence from low income countries increase. Over-investment into capital is not economically efficient.
That's creative destruction. Nothing wrog about that. If China's competitive advantage lies in manufacturing Aluminum more efficiently than the US, the market forces and even economic common sense dictate that they expand in this activity and for the US to abandon theirs and focus more on what they're really good at and what could prove as a competitive advantage for them.
China generally is not more efficient. Rather, China doesn't have the cost of externalities included in the price of the goods. The US doesn't ensure that all the cost is put back on the manufacturers, but our environmental and labor regulation ensures at least some of it is included in the price. I imagine if China had the same requirements on its power plants and manufacturing facilities as the US does then the advantage (if any) would not be very much.
I was referring implicitly to the fact that China is the single largest coal producer in the world. Setting aside the environmental considerations for a moment here, this is definitely a competitive advantage in electricity generation given that aluminum production is an electric energy intensive activity.
Then U.S. is benefiting from China drawing down on its natural capital (much of the pollution from Coal excluding CO2 emissions is local to the continent). U.S. should mothball it's aluminium industry and buy China's.
Does smelting actually need a lot of labor? I'd imagine this process is very scalable, bauxite flows into the plan, into furnaces, into machines which create ingots or sheets, etc. Labor would mostly be at the input/output stage of unpackaging/packaging, and of running the factory machinery and management.
But this is not like manufacturing phones where labor = O(number of phones produced). Am I wrong? Why is aluminum production not almost purely capital intensive?
If so, it would suggest that the advantage of China isn't cheap labor costs, but either cheap energy, cheap regulations, or cheap currency.
Which really means Chinese aluminum needs to be taxed to price in the full costs of environmental damage. If for example, the aluminum is produced by carbon emissions, or just plain old soot and other pollution, the costs of this should be estimated and other countries which import Chinese aluminum should slap a tariff on it equal to those costs. They should also domestically tax carbon. Actually, I'd argue that you can't really tax carbon domestically unless you tax it internationally.
> But this is not like manufacturing phones where labor = O(number of phones produced). Am I wrong? Why is aluminum production not almost purely capital intensive?
You still need people to handle the machines, repair the machines, perform billing, HR, etc. You don't have giant automated aluminium factories devoid of people.
> If so, it would suggest that the advantage of China isn't cheap labor costs, but either cheap energy, cheap regulations, or cheap currency.
Yes. It is more the cheap energy/regulations but the labor savings isn't 0. Aluminum factories in the west regularly have 7-9 figure environmental problems.
There is also the fact that although direct labor may not be a large % almost everything needed to create and maintain the plant is produced by China with cheap labor (including exotic things like rare earth metals). This is the ole McDonalds econ effect (McDonalds owns their own farms etc..) of controlling production of all upstream things to provide better price and leverage.
Besides regulation there is also the fact that China has a government where eminent domain and relocation citizens to other homes is not a problem.
I don't think you can solve that by just putting an import tax on aluminum. What about aluminum produced with cleaner energy than coal? Would you want to ask what energy source they used? Would you make it depend on the country of origin? What about for example cars? Would you also tax them for the aluminum content? Depending on the origin of that aluminum? If not it seems like you would create a disadvantage for US car manufacturers having to use the more expensive domestic or taxed imported aluminum. Or airplanes? Maybe it doesn't matter as much as I imagine because aluminum is always only part of the costs but I am convinced it would not be a trivial thing to tax dirty aluminum.
I think this is just the direction that needs to happen. The manufacturing and mining countries have a strong disincentive to carbon taxation -- the first mover gets the "prize" of losing market share to their untaxed competitors. So they will make lots of populist noises periodically, but eventually not be effective at it. Australia got rid of its carbon tax, and even when it had it it compensated many of the major polluters to shield them from its effects. China announces "targets" that are generally a little worse than what was predicted to happen already -- carbon output peaking in 2030, etc. Canada will make lots of "progressive" noises now Trudeau is in but eventually they'll do little to harm the competitiveness of their resources industry.
If you're going to get carbon taxation, it needs to happen at consumption, because that's where you're not asking turkeys to vote for Christmas. Tax materials and products at an average rate for that product by default, but at a lower carbon-dependent rate if there is an independently verified audit trail for the environmental impact of its materials and manufacture. Effectively, a VAT or GST rate that depends on environmental impact.
I would just like to add that multiple concentrates from different locations are frequently blended before being smelted into a refined product, so, even more to your point...
Seems like the best way to defeat the American War machine, is to dismantle it's manufacturing sector. Artificially lower <manufactured product> prices by subsidizing production in China, wait for American producers to fold. Wash rinse repeat as necessary.
<mind-control-sarcasm fetch-type="eager">Cool, maybe we'll finally see what happens when there are no American vested interests in fluoridating water now.</mind-control-sarcasm>
1. https://en.wikipedia.org/wiki/Economy_of_Iceland#Aluminium