US Magnesium Essay
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In Feb 2004, US Magnesium, the sole surviving US producer of magnesium, a metal that is primarily used in the manufacture of certain automobile parts and aluminum cans, filed a petition with the US International Trade Commission (ITC) contending that a surge in imports had caused material damage to the US industry’s employment, sales, market share, and profitability. According to US Magnesium, Russian and Chinese producers had been selling the metal at prices significantly below market value.
During 2002 and 2003, imports of magnesium into the US rose 70%, while prices fell by 40% and the market share accounted for by imports jumped to 50% from 25%.
“The US used to be the largest producer of magnesium in the world”, a US Magnesium spokesman said at the time of the filing. “What’s really sad is that you can be state of the art and have modern technology, and if the Chinese, who pay people less than 90 cents an hour, want to run you out of business, they can do it.
And that’s why we are seeking relief”. During a yearlong investigation, the ITC solicited input from various sides in the dispute.
Foreign producers and consumers of magnesium in the US argued that falling prices for magnesium during 2002 and 2003 simply reflected an imbalance between supply and demand due to additional capacity coming on stream not from Russia or China but from a planned Australian plant. The Canadian plant shut down in 2003, the Australian plant never went into operation, and prices for magnesium rose again in 2004. Magnesium consumers in the US also argued to the ITC that imposing antidumping duties on foreign imports of magnesium would raise prices in the US significantly above world levels.
A spokesman for Alcoa, which mixes magnesium with aluminum to make alloys for cans, predicted that if antidumping duties were imposed, high magnesium prices in the US would force Alcoa to move some production out of the US. Alcoa also noted that in 2003, US Magnesium was unable to supply all of Alcoa’s needs, forcing the company to turn to imports. Consumers of magnesium in the automobile industry asserted that high prices in the US would drive engineers to design magnesium out of automobiles or force manufacturing elsewhere, which would ultimately hurt everyone. The six members of the ITC were not convinced by these arguments.
In March 2005, the ITC ruled that both China and Russia had been dumping magnesium in the US. The government decided to impose duties ranging from 50% to more than 140% on imports of magnesium from China. Russian producers face duties ranging from 19% to 22%. The duties will be levied for five years, after which the ITC will revisit the situation. According to US Magnesium, the favorable ruling will now allow the company to reap the benefits of nearly $50 million in investments made in its manufacturing plant during the last few years and enable the company to boost its capacity by 28% by the end of 2005.
Commenting on the favorable ruling, a US Magnesium spokesman noted, “Once unfair trade is removed from the marketplace we’ll be able to compete with anyone”. US Magnesium’s customers and competitors, however, did not view the situation in the 2002-2003 period as one of unfair trade. While the imposition of antidumping duties no doubt will help to protect US Magnesium and the 400 people it employs from foreign competition, magnesium consumers in the US are left wondering if they will be the ultimate losers.