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Aluminum

Sourcing strategies

Written by By Corinna Petry

Above: TCI owns a pipe and tube processing operation in Wildwood, Florida.

A bright metals master distributor pivoted early to secure American mill partners and acquire domestic assets, alleviating tariff troubles for customers

May 2018 - “Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight,” said Henry R. Luce, who built a 20th century media empire (Time, Life, Fortune).

Incidentally, Luce was born and educated in China, which most would argue is the primary target of the Trump administration’s tariffs on carbon and stainless steels and aluminum. Ta Chen International (TCI), a master distributor based in Long Beach, California, is part of a global metals network headquartered in Taiwan and initially brought the vast majority of its products into the United States from Asia.

“We are one of the largest master distributors of stainless and aluminum in the U.S.,” says TCI President Johnny Hsieh. Founded in 1986 as a niche manufacturer and importer of stainless pipe, valves and fittings, it has become a specialist in processing and delivering stainless and aluminum semi-finished products, operating over a dozen depots across the U.S.

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TCI is a master distributor of aluminum and stainless steel products such as flat bar.

“Ta Chen is no longer just an importer. We own domestic manufacturing assets and we are looking to establish a bigger manufacturing footprint in the U.S.”

Equally important is that TCI is a “key supporter of many domestic suppliers,” Hsieh says. TCI “saw the signals” with previous administrations’ tariff programs, and began to move away from Chinese stainless vendors more than 10 years ago. “I thought it was very dangerous for Ta Chen to rely on sourcing from China in the long run.”

In 2017, the company sold more than 35,000 tons of aluminum a month or 420,000 tons per year, a volume which exceeds that of most mills, Hsieh says. It also sells over 16,000 tons of stainless steel per month. As such, “we have quite a bit of global purchasing power.”

For its stainless buys, TCI works predominantly with American producers like Allegheny Technologies Inc. and Outokumpu Stainless USA but also with such European mills as Aperam and Industeel.

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TCI is a master distributor of aluminum and stainless steel products such as sheet blanks.

As a buyer of U.S.-made products and an owner of American manufacturing assets, TCI backs traditional antidumping and countervailing duty investigations. “This is a process supported worldwide and recognized by the WTO. AD and CVD cases have rigorous tests for determination.”

Once set, they are virtually permanent. There is a five-year minimum before countries hit with AD/CVD are eligible for sunset review, he says, “and the Chinese have little to no chance to remove their duties in sunset reviews because they are not recognized as a market economy by the WTO or the U.S.”

‘What the heck?’

Hsieh expresses concern, widely echoed here and abroad, regarding the Section 301 and 232 determinations. These cases “are archaic or esoteric proclamations that don’t really have much support from the worldwide trade community or the WTO,” he says. “The proclamations are creating a lot of uncertainty and uneasiness in the supply chain due to the way these trade actions were administered.”

The metals and manufacturing supply chain are much more globally integrated than they were in the past, and they cannot turn on a dime, he says. “People need time to adjust to sudden supply shifts.”

Major trade action with a broad scope affecting multiple countries and sectors such as Section 232 should have been a reasonable phase-in period, so U.S. companies have sufficient time to react and adjust, Hsieh suggests. “We are left with everyone askng ‘what the heck?’ when you have one trade case after another in a very short period. It is almost overkill.”

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TCI and processes narrow strip in its Peachtree, Georgia, branch.

If Section 232 is targeted at China, China already pays AD/CVD duties on most metal products and “there is zero chance of Chinese aluminum or steel being specified for any U.S. Department of Defense project. They cannot even get into Boeing, Ford or GM, let alone Lockheed Martin, Northrup Grumman or General Dynamics.”

Regarding Section 301, which is designed to prevent intellectual property theft, “the potential tariff amount is very onerous and the scope is so extensive that it can potentially impact hundreds of thousands of import products that have nothing to do with technology or IP,” Hsieh says. “The process and timing of potential implementation is very murky so many U.S. businesses are frozen on the sidelines until the administration provides guidance.”

Competition

Hsieh believes the administration and domestic producers should be aware that trade cases can be a double-edged sword: “Imposing trade restrictions can incentivize foreign mills to invest in U.S. assets and build greenfield operations, bringing manufacturing overcapacity from offshore to the U.S.”—creating more competition at home.

The amount of capital Chinese businesses possess today is vastly greater than 10 years ago, he says, and the Chinese lack the short-term profit generation requirements that Western corporations have.

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President Johnny Hsieh says many aluminum mills, domestic and offshore, are already sold out through the fourth quarter.

“Many Chinese firms have a huge war chest and they measure ROI by market share gains rather than profitability. Tariffs will not stop them. They are not afraid to build enormous integrated mills on U.S. soil. If I were a U.S. mill, I would prefer to have Chinese-backed mills stay in China rather than operating across town.”

Common alloy chaos

While U.S. aluminum rolling mills shifted capacity to producing automotive body sheet over the past few years, it created a shortage of domestically available common alloy. “With the China common alloy trade case, the implementation of 232 tariffs and potential 301 tariffs, the aluminum common alloy supply chain is in chaos, causing prices to spike due to a sudden severe supply shortage,” says Hsieh.

The situation will worsen if no new common alloy capacity is built as even more current U.S. production transitions to automotive sheet in the next few years.

The fastest way for TCI to access more common alloy is to partner with a mill—domestic or foreign. “We hope to put the market back into equilibrium in 2019 by building a mill, partnering with an existing mill or acquiring existing domestic rolling mill assets,” Hsieh says.

Meanwhile, he worries some TCI customers seeking common alloy products won’t be able to fulfill contracts. “In this environment, we cannot extend long-term quotes because we can’t guarantee price or adequate supply. We are already sold out through third quarter; by the end of May, we will be sold out for 2018. Many domestic and offshore mills are also sold out for 2018 already.”

Many customers requested fourth-quarter allocation beginning in March. “That’s how tight this market is. In the second half, if you don’t have a major supply connection, there is a good chance that contracts will not get filled.”

Although Hsieh is supportive of trade action to protect domestic manufacturing interests, he hopes the administration gives the supply chain enough time to adjust and ameliorate supply shortages by phasing in duties until new capacity can be built in order to ensure the long-term welfare of the manufacturing sector and metals supply chain. MM

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