SIC 3334
PRIMARY PRODUCTION OF ALUMINUM



This classification includes establishments primarily engaged in producing aluminum from alumina and in refining aluminum by any process. Excluded from this classification are establishments primarily engaged in rolling, drawing, or extruding aluminum, which are classified in the following product groups: SIC 3351: Rolling, Drawing, and Extruding of Copper; SIC 3353: Aluminum Sheet, Plate, and Foil; SIC 3354: Aluminum Extruded Products; SIC 3355: Aluminum Rolling and Drawing, Not Elsewhere Classified; SIC 3356: Rolling, Drawing, and Extruding of Nonferrous Metals, Except Copper and Aluminum; and SIC 3357: Drawing and Insulating of Nonferrous Wire.

NAICS Code(s)

331312 (Primary Aluminum Production)

Industry Snapshot

With global production of 32 million metric tons in 2001, aluminum is the world's second most used metal, following steel. Divided into product groups, the aluminum industry comprises three distinct segments: primary aluminum manufacturers, semi-fabricated aluminum manufacturers, and secondary, or scrap aluminum manufacturers. Of these segments, the primary aluminum industry is the smallest, based on its number of manufacturers.

To produce aluminum, primary aluminum manufacturers first process bauxite (an ore that is the basic raw material of aluminum) to create alumina. A powerful electric current is then passed through a solution containing alumina to produce aluminum in its most basic form. This type of aluminum, shaped into either a mass of metal in a bar or a block shape (referred to as an ingot) or a smaller rectangular bar (referred to as a billet), serves as the raw material for manufacturers engaged in producing aluminum products. Primary aluminum manufacturers supply aluminum to semi-fabricated aluminum manufacturers and to a diverse array of manufacturers outside the aluminum industry who utilize aluminum to make their products.

Throughout much of its existence, the primary aluminum industry comprised fewer than 10 manufacturers, but approximately 21 manufacturers were involved in producing primary aluminum at the turn of the century. In 2001 these companies generated $5.5 billion in sales, an aggregate value of shipments substantially derived from the production of aluminum ingot, which accounted for over 80 percent of the industry's total shipments. Billet primary aluminum, the only other type of aluminum produced by the industry that accounted for any appreciable revenue, represented 19.7 percent of the industry's shipments.

These shipments were purchased primarily by participants in a few discrete industries. In the early 2000s the bulk of the industry's aluminum was utilized by manufacturers involved in the building and construction, container and packaging, and transportation industries, which when combined accounted for 65.7 percent of the industry's total shipments.

Recently, the growth of aluminum has been driven by the automotive industry. Car makers continue to produce lighter passenger vehicles and trucks in order to conform to the Corporate Average Fuel Economy (CAFE) regulations. By substituting one pound of aluminum for steel parts, the auto designers are able to remove 2.0 to 2.5 pounds of cast iron, making the use of aluminum very attractive. Significant growth in the industry is not expected until at least 2004 as the industry awaits the slow recovery of the U.S. economy.

Organization and Structure

Although the industry consists of relatively few manufacturers, the size of a primary aluminum manufacturing facility, when defined in terms of the number of people employed per establishment, was comparatively large when measured against other manufacturing industries. All of the 21 establishments involved in producing primary aluminum in 1997 employed 20 or more employees, and 19 of these establishments employed over 1,000 workers. Geographically, a majority of the establishments involved in the primary aluminum industry in 1998 were located in the Pacific Northwest. These firms accounted for 38.4 percent of total U.S. shipments. The Ohio Valley was the country's second most productive region, generating 31.9 percent of shipments.

Primary aluminum producers faced high overhead costs. In fact, the average cost per facility for the raw materials necessary to operate is higher in the primary aluminum production industry than in any other manufacturing industry. This disparity is mainly due to two key factors. First, aluminum production requires a tremendous amount of electrical energy, meaning that producers face staggering utility bills. Second, very little bauxite is found in this country, and, as a result, aluminum producers incur high costs for importing this essential ore. Consequently, running a primary aluminum manufacturing facility is very expensive: operating expenses are sometimes 14 times higher than an average manufacturing establishment. According to 1997 figures, the average cost for materials per establishment in the primary aluminum industry was $71 million. The average investment per establishment (that is, the average expense earmarked for purchasing and maintaining manufacturing facilities and machinery, as well as paying for production retooling) was also significantly higher in the primary aluminum industry. In 1997 primary aluminum manufacturers paid an average of $16.9 million for such expenditures.

Background and Development

In 1886, the concurrent development in the United States and France of an economical electrolytic process for refining aluminum immediately spawned widespread optimism. Many manufacturers regarded the discovery as the new metal of the future. Aluminum would continue to be regarded as the metal of the future throughout its first century of existence, indeed well past the time its future should have arrived. All of this optimism led aluminum manufacturers and government officials to overestimate demand for the metal on occasion. But the creation of a process to economically produce aluminum did, however, warrant its fair share of hyperbole, even if the expectations associated with its production sometimes ran too high. The metal possessed desirable conductive and thermal properties, was lightweight, and could be used to form many hard, light, corrosion-resistant alloys. As American manufacturing industries slowly moved toward creating products that were lighter in weight, aluminum would prove to be an integral component in a wealth of manufacturing processes, eventually establishing a pervasive, global presence that would validate the hopeful projections held by aluminum's early proponents.

But in 1886, there was really no clear plan regarding how aluminum could become, in practical terms, the metal of the future. Discovery of the myriad applications for the new wonder metal fell entirely to the only aluminum manufacturing company of any consequence at the time, the Pittsburgh Reduction Company, later renamed the Aluminum Company of America, and more commonly known as Alcoa. Indeed, Alcoa would remain the only manufacturer of any consequence for the aluminum industry's first 60 years, establishing a monopoly over the U.S. aluminum market during the interim and, consequently, solely guiding the industry's direction for the first half of the twentieth century.

Under the partial stewardship of Charles Martin Hall, a young chemist who discovered the more economically feasible process of aluminum production while working in his woodshed, Alcoa faced the daunting chore of first creating both a need and a demand for aluminum. Initially, the company utilized aluminum to manufacture a line of cooking utensils, which later, in 1901, were successful enough to merit the organization of a cook-ware subsidiary named American Cooking Utensil. The biggest market for aluminum, however, proved to be the automobile industry, a market that would fuel the industry's growth for its first five decades of operation. By 1915, 65 percent of all primary aluminum was utilized in automotive parts.

At this time, Alcoa still stood alone in the U.S. aluminum market, with the only competition coming from foreign manufacturers, whose penetration of the U.S. market was limited by high tariffs and comparatively higher energy costs. America's entrance into World War I quelled the negligible affect foreign manufacturers had on Alcoa and provided the opportunity for America's uncontested primary aluminum giant to begin exporting aluminum to Great Britain, France, and Italy. On the home front, Alcoa enjoyed commensurate success, supplying the federal government with aluminum for military applications.

By the end of the war in 1918, Alcoa was producing 152 million pounds of aluminum annually and stood poised to further develop export markets it first explored during the war. The manufacturing of aluminum had become a lucrative business, due largely to escalating demand during the war and to the fervor with which the automobile industry embraced the still new metal. Alcoa, almost entirely responsible for creating this burgeoning demand, sought to capitalize on the boom wherever it could and, as such, spent the 1920s acquiring factories, bauxite mines, and power-generating facilities in Scandinavia, western Europe, and Canada. Toward the end of the decade, however, Alcoa's ubiquitous presence overseas made efficient management and production too difficult. In 1928, the company divested all of its foreign operations, excluding the bauxite mines it owned in Dutch Guiana, which were spun off as Aluminum Limited and later renamed Alcan Aluminum Limited.

Reorganized and focused on domestic production, Alcoa struggled through the Great Depression, during which the company's sales plummeted from $34.4 million to $11.1 million and half of its workforce was laid off. Once demand for aluminum returned in 1936, Alcoa quickly recovered from the earlier losses, still maintaining an omnipotent grip on the U.S. aluminum market. This enviable position, however, would not be enjoyed by the company for long, as the end of the 1930s signaled the beginning of a new era of competition in the U.S. primary aluminum industry, although it would be over a decade before competition in the industry would begin in earnest.

Anti-trust suits had been filed against Alcoa by the U.S. Justice Department dating back to 1911 without much success, but in 1937 a suit filed by U.S. Attorney General Homer Cummings, charging Alcoa with monopolization and restraint of trade, initiated proceedings that finally wrested control of the U.S. aluminum market away from Alcoa. The trial lasted from 1938 to 1940 and several appeals were made. Although a district court ruled in Alcoa's favor in 1942, the final decision, in 1945, sustained the government's appeal.

While lawyers for both parties submitted a series of appeals that made the Alcoa anti-trust suit the largest proceeding in the history of U.S. law at that time, America entered another war, spurring demand for aluminum. The military applications for aluminum significantly increased during the 23-year span between World War I and World War II, creating a military appetite for aluminum that Alcoa, still the lone manufacturer in the United States of any consequence, found unable to satiate. Frustrated by Alcoa's inability to supply all the aluminum that was needed, the war department stepped in and financed new plants to provide additional production capacity.

These plants, built and operated by Alcoa, swelled the nation's output of aluminum and enabled the heightened demand to be met. As the war drew to a close and victory appeared assured, government officials were left with the responsibility of what to do with the additional capacity created during the war, which would be super-fluous during peacetime. The answer to the problem was the solution of another exigency: namely, how to effectuate an equitable conclusion to the anti-trust suit levied against Alcoa? The decision was made to offer the government-financed aluminum production plants at reduced prices to two fledgling aluminum manufacturers, Reynolds Metals Company and Permanente Metals Corporation, both of which were owned by industrialist Henry Kaiser. In 1950, a district court decree parceled out the U.S. aluminum market among the three manufacturers, giving Alcoa 50.9 percent of the nation's production capacity, Reynolds Metals 30.9 percent, and Permanente Metals, by this time renamed Kaiser Aluminum & Chemical Corporation, 18.2 percent of production capacity.

Although the seven-year debate concerning the redistribution of the U.S. aluminum market did not necessarily spawn an industry comprised of numerous participants but instead left control of the market to a tightly knit cadre of manufacturers, competition was nevertheless quick in coming, particularly from Reynolds Metals. The company's aluminum production capacity doubled as a result of acquiring six of the governmentfinanced plants, which enhanced its ability to capitalize further on the introduction of its aluminum foil products several years earlier in 1947. Although much smaller in terms of sales volume and production capacity than Alcoa, Reynolds Metals established itself as the more aggressive marketer, expanding overseas at a rapid rate, while still focusing on developing innovative applications for aluminum that would later help elevate the company's magnitude in relation to Alcoa's.

A postwar housing boom infused the industry with an increased demand for aluminum, but the problem of smelting over-capacity, unresolved by the government's actions following the war, remained as a potential impediment to the industry's continued success. Although the hazards posed by excess supply did not threaten primary aluminum manufacturers to any great extent during the 1950s, the danger still remained. To exacerbate matters, production capacity tripled during the decade, partly due to justifiable increases engendered by the rising demand for aluminum from the housing, construction, and transportation industries. But demand was also fueled by federal orders to augment aluminum production to meet the demand created by the nation's involvement in the Korean War. The industry was protected from the negative affects of oversupply during the early 1950s due to an agreement with the federal authorities that guaranteed the purchase of excess aluminum at market prices by the government, referred to as a "put." But federal intervention merely masked the problem of overcapacity, a problem that would plague manufacturers in the years to come.

Despite their inherently precarious position, primary aluminum manufacturers entered the 1960s rightfully optimistic. The decade would bring with it the development of several new applications for aluminum that would enrich the industry considerably and fuel its growth for the next several decades. The utilization of aluminum to manufacture automobile engines, used in only one model in 1960, became more widespread during the early 1960s, and 1961 commenced with eight automobile models boasting aluminum engines. Further, aluminum bumpers and other new applications for automobiles were being developed, contributing to a rise in the amount of aluminum utilized per automobile to 62.1 pounds by 1961. A year earlier, Reynolds Metals introduced the first aluminum drill pipe, which was met with encouraging enthusiasm by other manufacturing industries. Reynolds Metals' greatest gift to the future success of the primary aluminum industry came in 1963, however, with its fabrication of an aluminum beverage can. The utilization of aluminum in beverage cans would increase dramatically for the next 30 years, supporting the industry's growth throughout the 1960s and 1970s and becoming a linchpin to primary aluminum manufacturers' survival in the 1990s.

These developments, combined with a housing construction boom and the growing popularity of mobile homes, which contained a large amount of aluminum, drove demand from domestic customers upward, while the industry's export activity accelerated at a rapid rate. Foreign demand for U.S. aluminum tripled between 1959 and 1960, totaling over 500 million pounds in the first year of the decade, and enabling U.S. manufacturers to sidestep the pernicious affects of oversupply.

To foster the further development of overseas markets, U.S. manufacturers of primary aluminum also began striking affiliation agreements with foreign aluminum producers in the early 1960s. In addition to joint ventures already existing at that time in Guinea and elsewhere, primary production facilities were opened in Greece and Australia in 1960, concurrent with the development of a hydroelectric and aluminum project in Ghana.

By aggressively developing new markets for their product, instead of patiently waiting for demand to catch up to supply, which was the general practice in former years, primary aluminum manufacturers had ameliorated their position in the aluminum marketplace. As sales climbed for each manufacturer and production increased, however, industry participants found they were actually recording smaller profits, causing one manufacturer to describe the industry's performance as characterized by "profitless prosperity." Indeed, profitless prosperity was an apt description, and one that would be equally applicable in the ensuing years. The deterioration of aluminum prices, shrinking profit margins, and an excessive amount of unused production capacity saddled manufacturers with a growing percentage of operating costs that did not generate revenue. To exacerbate matters, the importation of primary aluminum into the U.S. market saturated a market already sufficiently supplied with aluminum. Consequently, U.S. producers of aluminum were shipping more aluminum but reaping reduced earnings. The three largest manufacturers watched with dismay as their combined net profit margins slipped from 10.7 percent in 1956, to 5.2 percent by 1960. Alcoa, for example, which produced 36 percent of all the aluminum manufactured in the United States at this time, posted a sales total within 1 percent of its record high in 1960, yet lost $40 million, the company's worst profit performance in a decade. Thus, the paradoxical nature of the primary aluminum industry became readily apparent in the early 1960s—innovative applications for primary aluminum promised increased demand and production levels grew, but manufacturers garnered comparatively prosaic earnings.

By the mid-1960s, the primary aluminum industry was comprised of 7 companies operating 23 separate plants. Conditions had improved considerably in the five years since earnings slipped from more lucrative levels, as the industry recorded its fourth consecutive record year in shipments in 1965. Significant gains were realized in several markets that relied on primary aluminum for manufacturing purposes, most notably the burgeoning demand for aluminum to fabricate truck trailers, mobile homes, and related equipment. Aluminum usage in this segment of the transportation market jumped 32 percent in 1964, complementing an increase in the usage of aluminum per automobile to nearly 70 pounds. The electrical market also provided additional business for aluminum manufacturers, as aluminum usage for underground residential distribution cable, building wire for industrial, commercial, and residential uses, and extra high voltage transmission lines increased 19 percent.

These surges in demand experienced by the primary aluminum industry's key end-use markets were related to the concerted search by aluminum manufacturers for new ways in which aluminum could be used. This, however, was nothing new; manufacturers had been exploring aluminum's potential applications for years, beginning with Alcoa's initial research and development efforts back in the 1890s. What was new, and what sparked a resurgence in optimism regarding the primary aluminum industry's future by manufacturers and industry observers alike, was a stabilization of aluminum prices, which previously had fluctuated wildly, glutting production capacity and squeezing profit margins. Also, the affiliations with foreign aluminum manufacturers that were initiated earlier in the decade began to buoy the industry's performance, as manufacturers benefited from high-volume, global operations.

Providing further impetus to the industry's growth was a trend toward incorporating aluminum into many new large-scale construction projects during the mid- 1960s, such as in skyscrapers and large ships. These emboldening developments led industry observers to note that perhaps the primary aluminum industry was emerging from its extended adolescence and had indeed become the metal of the future after nearly 80 years of commercial availability.

By the end of the decade, 9 manufacturers representing 13 companies were involved in the production of primary aluminum. The building and construction market continued to be the largest consuming segment of primary aluminum, accounting for 23 percent of the industry's shipments. The transportation industry ranked second, purchasing 20 percent, followed by the electrical market, which accounted for 13 percent, and the rapidly growing packaging and containing market—enlarged by the increasing popularity of aluminum beverage cans—accounted for 10 percent. During the 1960s, aluminum shipments increased by an annual average rate of roughly 9 percent and the price of aluminum continued to remain stable. The estimated average price index for primary aluminum in 1969 reflected only a 4 percent increase from the 1960 level.

In the early and mid-1970s, an energy crisis touched off recessive economic conditions that sent many manufacturing industries' earnings spiraling downward. For primary aluminum manufacturers, the deleterious effects of the energy crises were particularly harsh, since their production facilities were the most energy-intensive of all manufacturing activities. Aluminum manufacturers consumed four percent of all the electric power generated in the United States, the purchase of which represented greater than a third of the total manufacturing cost of aluminum. Consequently, when the price of electricity soared, primary aluminum manufacturers suffered the brunt of the damage engendered by escalating energy costs. In 1975, the nadir of the recession, primary aluminum operating capacity dropped to 75 percent and the industry's total shipments plummeted 28 percent from the previous year's total.

Despite the decline in shipments, primary aluminum inventories swelled during the recession. It took two years to work off the aluminum ferreted away during the general economic decline once the economic scene improved, prolonging the industry's recovery. Not surprisingly, primary aluminum manufacturers intensified their efforts toward developing primary aluminum processes that reduced their dependence on electricity. Laudable achievements already had been achieved toward this objective; the energy consumption required to produce aluminum dropped from 12 kilowatt hours per pound following World War II, to roughly eight kilowatt hours by this time. But, after the recessive mid-1970s, manufacturers invested more time and money into developing alternative methods to produce aluminum. Additionally, a majority of primary aluminum manufacturers began concentrating more on the secondary smelting of aluminum, which required far less electric power.

Once the industry recovered from the negative affects of the energy crises in the late 1970s, manufacturers were unable to meet the rising demand for aluminum, as conditions within the industry quickly reversed. The transformation was only temporary however, for demand just as quickly disappeared in the early 1980s, due in part to a significant decline in housing and construction activity. Compounding the situation, aluminum prices plummeted, causing the closure of a substantial percentage of production capacity. Despite the diminished production capacity, total operating smelter capacity in the United States fell to 72 percent, 3 percentage points below the low recorded in 1975. By the mid-1980s key aluminum markets had become saturated, with foreign aluminum manufacturers carving out a 21 percent share of the U.S. primary and fabricated aluminum market, up from the 9 percent market share they secured in 1980.

Sales in the U.S. aluminum market grew at twice the rate of the gross national product during the 1960s and 1970s, but in the 1980s the expansion into new, untapped markets was no longer possible. Buffeted by a rapidly growing scrap aluminum industry that benefited from the trend toward recycling and an increasing use of plastic instead of aluminum for beverage containers, primary aluminum manufacturers faced unfavorable prospects as the industry faltered in its tenth decade. The fabrication end of the aluminum industry, which generated 80 percent of the overall aluminum industry's revenues by the mid-1980s, began to attract more primary aluminum manufacturers as the decade drew to a close. Between 1982 and 1987 the number of manufacturers climbed from 15 to 34. At the same time, primary production facilities sprouted up overseas, signaling for some the beginning of a new era in U.S. aluminum production.

The primary aluminum production industry in the late 1990s was undergoing a number of consolidations. In 1999 aluminum prices fell to a five year low because of global over-capacity and a flood of cheaper imports into the United States. Seeking a way to insulate themselves from the industry's cyclical downturns, a number of primary aluminum producers merged in 1998. After acquiring Alumax and Inespal, Alcoa made a bid to purchase Reynolds in 1999. Alcoa's chief executive, Alain Belda, explained the impetus behind his company's acquisition binge to the August 25, 1999, Wall Street Journal as an effort to obtain "greater efficiencies and cost reductions" in the face of the "industry's lowest prices in years."

Primary aluminum production is not a high growth industry. Although buffeted by periodic price fluctuations, primary aluminum producers can rely upon steady demand from the various industries that consume aluminum. Since 1994 the automobile industry has been the largest consumer of aluminum—accounting for 30.9 percent of net shipments (over 7 billion pounds) in 1998 alone. Aluminum sales to automobile manufacturers have increased 110 percent since 1990. Although steel is the most commonly used metal in car production, aluminum is playing a greater role as pressure for more fuel-efficient—and lighter—cars grows. Aluminum can save up to 50 percent in weight over some steel parts and can match steel's safety as well. According to the August 12, 1999, Wall Street Journal , car manufacturers used 4 percent more aluminum in their model year 2000 vehicles than they had in the prior year. Future growth in this market is anticipated since car and light truck sales continue to rise.

The second-largest end use for aluminum is packaging. Soft drink and beer cans, food containers, and household and institutional foils accounted for 21.6 percent of all aluminum shipments (over 5 billion pounds) in 1998. The building and construction industry—fueled by projects in the residential, industrial, commercial, farm, and highway sectors—purchased 13.2 percent (3 billion pounds) of total shipments. Aluminum is also becoming important in the building of infrastructure, such as bridges and oil rigs. Because it is lightweight as well as strong and durable, increasing numbers of construction contractors incorporate aluminum in their projects. Other traditional markets requiring aluminum components, such as computers, office machines, and small engines, continue to be seen as markets for long-term growth into the twenty-first century.

In addition to being subject to price fluctuations and market demands, the primary aluminum production industry continues to be affected by the price of electricity. Aluminum smelters require massive amounts of electricity, and a manufacturer's profitability is in large part determined by energy costs. According to the August 25, 1999, edition of the Wall Street Journal , electricity accounts for about one-third of the total cost of aluminum production. The industry as a whole consumed over $2 billion worth of electricity in 1998. Not surprisingly, aluminum-producing companies have strenuously advocated the deregulation of the American electric utility industry, which would theoretically introduce competitiveness into electric pricing. By mid-1999, California, Connecticut, Illinois, Maine, Massachusetts, Montana, Pennsylvania, and Rhode Island were implementing deregulation, while Idaho, Nevada, New Hampshire, New Jersey, New York, and Washington had instituted experimental pilot programs. Aluminum producers, though, had taken successful steps to reduce energy consumption long before deregulation. Since 1970 the industry as a whole improved its energy efficiency by about 20 percent. Even more impressive is the fact that since 1930 the average amount of electricity needed to make a pound of aluminum has dropped from 12 kilowatt hours to about 7 kilowatt hours.

Primary aluminum producers' profits are also influenced by environmental regulations. The domestic construction of new smelting capacity was limited by the amended Clean Air Act of 1990, which in part required electric utilities to reduce sulfur dioxide emissions. The costs incurred by electric utilities in making these emission reductions were in turn passed on to primary aluminum manufacturers. Aluminum producers have also had to invest large sums of capital into advanced scrubber systems in order to satisfy the Clean Air requirements. As a result, U.S. aluminum companies have begun to look for alternate suppliers of electricity and have made efforts to start a futures market for electric power.

Current Conditions

Already showing some signs of mild weakening early in 2001, the aluminum industry was directly affected by the terrorist attacks of September 11, as the commercial aerospace industry came to a screeching halt. Although aluminum producers did not feel the effects immediately, as commercial airlines postponed and cancelled plans for new planes, the demand for aluminum declined in the sector during 2002. Top producers, Alcoa Inc., Alcan Inc., Century Aluminum Co., Commonwealth Industries Inc., and Kaiser Alumium Corp., reported $2 billion in operating profits in the first three quarters of 2002, compared to $3 billion for the first three quarters of 2001.

The U.S. aluminum industry has a smelting capacity of more than 4.2 million metric tons, and the industry typically runs at approximately 88 percent of capacity, producing 3.7 million metric tons annually. With decreased demand due to the weak economy of the early 2000s, overcapacity has hampered market conditions. Price in September 2001 was running 7.5 percent lower than the same period of the previous year.

Transportation-related sales have been bolstered by increased production of military aircraft such as C-17s, F-16s, and FA-18s, which are 75 to 80 percent composed of aluminum, but commercial airline business is way off. After robust auto sales in 2002, spurred on by zeropercent financing offers, activity in the automotive sector decelerated during 2002, with recovery expected to be slow. Construction-related sales have been bolstered by strong new housing construction, but aluminum's big business in construction is in the commercial and industrial segments, which are not expected to see signs of significant improvement until at least 2004.

Industry Leaders

In the mid-1990s, a number of mid-sized and large establishments were engaged in the primary production of aluminum. Prompted by low aluminum prices, however, the industry began to consolidate rapidly in the final years of the decade.

After a spate of acquisitions, Alcoa Inc. regained its historic place as the most powerful aluminum producer in the world. With over 127,000 employees worldwide, Alcoa's 2002 sales topped $20 billion. The company had played a pivotal role in primary aluminum production since the industry's beginning. Indeed, for the first 60 years of the industry, primary aluminum production meant Alcoa. Its patent for the electrolytic process that first made the production of aluminum commercially feasible gave Alcoa a jump-start on its competitors. Negatively affected by the overall slide of the primary aluminum industry during the 1980s, Alcoa diversified its operations to mitigate its losses from the decline and placed a lesser emphasis on the production of primary aluminum. Instead, Alcoa concentrated more on the fabrication end of the aluminum industry, as well as smelting secondary aluminum harvested from recycled aluminum. In 1998 Alcoa acquired Alumax, Inc.—with sales of over $3 billion and some 15,000 employees—and Norada Aluminum Inc. After its archrival, the Canadian company Alcan Aluminums, merged with Pechiney of France and Alsuisse Lonza (of Switzerland), Alcoa turned its eyes toward its largest American competitor, Reynolds Metals. Reynolds accepted Alcoa's takeover bid of $4.4 billion in 2000 and now operates as Reynolds Food Packaging, a subsidiary of Alcoa.

Workforce

Total employment in the primary aluminum industry declined throughout much of the 1980s, then stabilized toward the latter end of the decade. By 1988 the industry's employment base was nearly 26,000, and during the period from 1990 to 1992 decreased to approximately 25,000 workers. Further reductions in the industry's production capacity and the trend toward relocating smelting facilities abroad eroded the industry's total employment level to 15,763 in 1997, continuing to fall to 12,796 by 2001.

Of the 12,796 people employed in the primary aluminum industry in 2001, an overwhelming majority—more than 10,138—were employed as production workers. Salaried employees, or those performing managerial, administrative, or technical duties, composed the balance of the industry's workforce.

Generally, production workers were employed by the industry on a full-time basis. Average hourly wages in the primary aluminum industry were considerably higher than the average amount earned by production workers employed by all other manufacturing industries. In 2001 production workers in the industry were paid an average of $22.08 per hour.

As a consequence of the comparatively high hourly wage paid to production workers in the industry, the personnel costs per manufacturing facility, including both production workers' wages and salaries paid to managerial, administrative, and technical staff, were appreciably higher than the personnel costs incurred by the average of all other manufacturing industries. In 1997 the average payroll per establishment in the primary aluminum industry was over $33 million.

Prognostications for the industry's workforce in the year 2005 suggested a general decline for nearly every occupation employed by the primary metals industry, of which the primary aluminum industry is a subdivision. According to U.S. Bureau of Labor estimates, furnace operators, materials and ceramic engineers, and metallurgists are expected to proportionately increase their representation in the industry by the end of the twentieth century. Occupations expected to be affected most severely were machine operators, material and stock movers, and bookkeeping and accounting clerks.

America and the World

Domestic aluminum producers have often accused their foreign competitors of "dumping" aluminum, or selling their products at artificially low prices in the United States to increase their market share. This situation was especially tense in the early 1990s, as the amount of aluminum originating in the former Soviet Union ballooned from 250,000 metric tons to 1.6 million metric tons between 1989 and 1993. As a result of this flood of aluminum unleashed on the domestic market, U.S. producers cut production by 796,000 metric tons, or 20 percent of capacity, and laid off 1,300 employees. In 1995, the 14 aluminum smelters in the Commonwealth of Independent States (the countries that had previously comprised the Soviet Union) were privatized. Without subsidies from the Russian government, the CIS manufacturers were liable for their own operating costs. They could no longer afford to sell aluminum below open market cost and remain operational.

Because U.S. tariffs imposed on products imported from foreign aluminum mills are much lower than those levied by other countries on American aluminum, imports still account for a substantial portion of the total U.S. aluminum supply. Aluminum imports rose 16.4 percent in 1998. In fact, nearly one-third of all aluminum consumed in the United States in 1998 came from abroad. Aluminum from Canada and Mexico together represented over 60 percent of all imports in 1998. European nations not within the European Union (EU) accounted for 20.1 percent of all imported aluminum, followed by Latin American countries with 7.6 percent, and by EU member nations with 5.6 percent.

On the opposite side of the trade equation, the United States did export aluminum to other countries. In 1998 exports accounted for 12 percent of the total market for U.S. aluminum. Sixty-two percent of U.S. aluminum exports were destined for Canada and Mexico, while 22 percent were sent to East Asia. Latin America was the end market for 8.6 percent of U.S. aluminum exports, followed by EU members at 3.8 percent.

Further Reading

"Aluminum Business May Not Recover until 2004, Analyst Says." The Food Institute Report, 13 January 2003, 4.

Brooks, David. "Tough Markets Push Kaiser Deeper into the Red." American Metal Market, 1 April 2003, 5.

——. "U.S. Aluminum Mill Orders Off 20.8 Percent in March on Weak Flat-Rolled Sector." American Metal Market, 24 April 2003, 3.

Deogun, Nikhil and Matthews, Robert Guy. "Reynolds Metal Yields to Alcoa's Bid." Wall Street Journal, 20 August 1999.

Evans, Chris. "Weak Demand, Rising Stocks Could Aid Aluminum Traders." American Metal Market, 17 January 2002, 5.

Guerriere, Alison M. "Aluminum Trading Makes Lackluster Start to New Year." American Metal Market, 11 January 2002,5.

Holman, W. Jenkins, Jr. "Oh Horrors! A Beverage Can Oligopoly." Wall Street Journal, 25 August 1999.

Klebnikov, Paul. "Does Size Matter?" Forbes, 6 September 1999.

Matthews, Robert Guy. "Suddenly Consolidation Rolls All Over Aluminum Industry." Wall Street Journal, 12 August 1999.

Misner, Scott. "User Benefits Foreseen as a Result of Energy Deregulation." American Metal Market, 30 April 1999.

"Outlook Dreary for Steel, Brighter for Aluminum." Standard & Poor's Industry Surveys: Metals, 23 January 2003, 1-6.

Pinkham, Myra. "Building for the Future." Aluminium International Today, March-April 2003, 43-44.

——. "Mixed Fortune for U.S. Aerospace Demand." Aluminium International Today, December 2001, 14.

Stundza, Tom. "Demand Sluggish, Prices Weak." Purchasing, 5 September 2002.



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