Often governments turn to the biggest players in the industry for advice because whatever government policy that is done, there will be a cost and large players have the ability to analyze the potential costs to them. Then the company can decide to hold prices or try to raise them in order to maintain their margins. One would think the President of the US with access to some of the biggest companies in the world for advice, would have done that. Perhaps he did, but perhaps he outlined what companies thought he would do and did something else.

In an article by Niall McGee, the largest aluminum producer in the US is Alcoa Corp. The company discovered aluminum and at the time quickly became more of the largest holders of bauxite reserves (the raw material}. In addition to bauxite, the process in very energy dependent or the need for long term inexpensive hydro is needed. Fortunately for Alcoa, a spot was discovered to be perfect in Quebec and the Canadian government essentially gave away the hydro rights to the company which ensured inexpensive energy inputs. A number of years later, with Alcoa controlling more than 90% of the market, the company was broken up by the US government and the Canadian division became Alcan.

The way that it worked was Alcan made the aluminum, and the processing or manufacturing of the product was done in the US. The system has worked very well until President Trump imposed tariffs on aluminum which drives up the cost.

The CEO of Alcoa William Oplinger is appealing to President Trump to drop its tariffs on Canada because the US does not have domestic capacity to fulfill its needs, and any attempts to meet that demand would put a strain on the electricity grid.

On a conference call, CEO Oplinger said even if the US aluminum capacity could be maxed out, the country would face a shortfall of 3.6 million tonnes. To build a new smelter years as well as additional energy production. The new production would require 7 new nuclear reactors or the equivalent of 10 Hoover Dams. Who will build those?

Until the smelters are built, the most efficient aluminum supply chain is through Canada which currently supplies 70% of the US needs. Thus to support the downstream processing jobs, we need to have upstream aluminum production that can be Canada. (it is noted: the system in place means 90% of aluminum cans used in Canada are made in the US).

Alcoa is a top 10 globally producer of aluminum and the chemical compound of alumina. It is also one of the world’s biggest bauxite miners. The company operates in 28 locations and 9 countries around the world and is headquartered in Pittsburg.

Linking to dividend paying stocks, one of the reasons to invest in these companies is besides the ability to make profits and pay dividends is senior management should have connections into government to ensure policies tend to affect them the least. The companies ensure analysis into all aspects of their operations is comprehensive and constantly worried about alternatives. One would think policy makers would want to reach out to the senior management before enacting policies which hurt them, because they have to be reported in financial press when the companies are negatively affected. People will question the administration is this the outcome you were expecting?

There are more questions than answers, till the next time – to raising questions.