127-Year-Old U.S. Aluminum Industry Collapses Under China's Weight
bloomberg.com
bloomberg.com
1. https://en.wikipedia.org/wiki/Economy_of_Iceland#Aluminium
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.
As China and other places green, you can expect the price of aluminum to rise and production to float to other places.
If China roars back, so will the coal plants.
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.
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.
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.
http://www.asymco.com/2012/02/22/the-iphone-manufacturing-co...
https://en.wikipedia.org/wiki/List_of_automobile_manufacture...
Beijing Automotive Industry is interesting. They have been trying to buy their way into (more competitive) western technology.
https://en.wikipedia.org/wiki/Beijing_Automotive_Industry_Ho...
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.
I also highly doubt america produces more than a fraction of those made in asia. Is bamboo even growing in north america?
You won't find a similar page where a U.S. airline touts their new Chinese-made airliner.
"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...
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?
Here's a list of recycled smelting operations: http://www.lightmetalage.com/producers.php
http://minerals.usgs.gov/minerals/pubs/commodity/aluminum/
Recycling is ~75% of imports. About half of recycling is from manufacturing waste, about half from recycled aluminum products.
The major source of US imports is Canada, in 2013 they supplied 64% of US imports (China was 4%, behind both Russia and the UAE at 5%).
It'd be interesting to see if China is exporting raw aluminum or finished products.
Low labour costs help.
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.
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.
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.
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.
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.
Huawei revenues are already on par with Cisco, at least that one worked out pretty well.
To what extent I'm not entirely certain.
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.
But most mcdonald in asia and africa have a straw box like this one. http://www.wesellcoffee.com/media/22711%20STRAW%20DISP.jpg
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.
"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."
https://agmetalminer.com/2015/08/28/china-to-close-millions-...
"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.
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).
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
https://www.youtube.com/watch?v=guOq9cdFbJANot exactly cheap though...
EDIT: I replied to the wrong comment. My apologies!
Edit reply: wrong comment makes more sense! Well, I'll let this stand in case anyone doesn't know that carbon fiber is expensive.
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.
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.
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.
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.
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.
Though note that there may be strategic reasons for having some aluminum production capability.
Keeping agrarian societies in their place since 1817.
Besides, if the yuan rises against the dollar or Chinese electricity costs go up, all the smelting will eventually go somewhere else.
1) Cheap labor. [ But India and other countries have cheap labor ]
2) A willingness to completely disregard ecological damage.
Its #2 that makes them into a blackhole and since everyone on Earth breathes the same air...yeah.
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.
https://agmetalminer.com/2009/02/27/cost-build-up-model-for-...
I've seen estimates from 7-10% are labor costs.
> 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.
http://www.geelongadvertiser.com.au/news/geelong/epa-orders-...
http://www2.epa.gov/enforcement/case-summary-alcoa-inc-condu...
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.
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.
<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>