Pete Coors calls for government intervention in aluminum markets

Molson Coors Vice Chairman Pete Coors is calling for the U.S. government to intervene in the aluminum markets to thwart the “manipulation of a cozy clique of suppliers” that’s led to artificially high aluminum prices. 

Coors, in an opinion piece published today in the Wall Street Journal, said the Trump administration’s recent decision to lift aluminum tariffs on Canada and Mexico means 77% of imported aluminum is tariff-free. Yet the metal is still priced as if it was subject to a tariff.

“Thanks to manipulative business practices that appear to permeate the industry, it doesn’t matter if you buy from a tariffed company or an American one—you’ll still pay the same high price,” Coors wrote.  

The result is that Molson Coors — which buys enough aluminum to produce 12 billion 12-ounce cans per year, is paying nearly 20% more for aluminum than it did last year.

Until President Trump, Congress and the U.S. regulatory system apply more scrutiny and oversight to the aluminum market, “American companies like Molson Coors will continue to contend with these anticompetitive antics.”

The full opinion piece is below.

By Pete Coors

According to President Trump, tariffs can be “completely avoided if you buy from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs.” Unfortunately, this isn’t quite true for anyone buying aluminum. Thanks to manipulative business practices that appear to permeate the industry, it doesn’t matter if you buy from a tariffed company or an American one—you’ll still pay the same high price.

Until May, U.S. companies purchased only 73% of their imported aluminum from tariffed countries, but all of it was priced as if it were tariffed. Now Mr. Trump has lifted tariffs on imports from Canada and Mexico, so 77% of the imported aluminum that U.S. companies buy is free from tariffs—yet it still is priced higher as if it were tariffed.

At the same time, the base price for primary aluminum as set by the London Metal Exchange has fallen 15% in the year since the aluminum tariffs took hold. Prices for scrap material—which composes 70% of aluminum in a beverage can—have fallen 26%. Yet my company pays almost 20% more for the aluminum in our cans than it did a year ago.

Why? Because aluminum suppliers and traders are taking advantage of the pricing umbrella that the tariffs put in place. Because tariffs boost prices for part of the industry, the remaining untariffed firms are under less competitive pressure to keep their prices low. In fact, Alcoa and other aluminum giants have the market power to raise prices above the market rate. The less transparent and competitive a market is, the more firms can charge.

The aluminum market is dominated by a handful of companies that employ archaic and opaque pricing mechanisms. They are exploiting the aluminum tariffs to profit at the expense of the end user, raising their prices to match tariff prices. Smelters and traders have such significant market power that even with tariffs lifted off Canada, which supplies half the aluminum imported to the U.S., Harbor Aluminum Intelligence predicts that end users like Molson Coors will keep paying the higher prices they do now. Aluminum suppliers will pocket an extra $700 million a year in profit.

I’ve seen this behavior up close. Smaller firms likely have it worse, but even a company the size of Molson Coors is powerless to obtain better prices. Every year, my company sells 12 billion cans of beer and buys enough aluminum to build 4,000 jumbo jets. In the past six months we asked each U.S. supplier, separately, for better rates and they flatly refused. It was as if they were singing in unison.

These elevated prices enrich dominant suppliers and big trading firms such as Glencore . But their billions in profits come at the expense of U.S. consumers and companies that use aluminum, like Molson Coors. American companies have had to pay an additional $2 billion in higher aluminum costs since the tariffs went into effect, according to Harbor.

Smelters and traders have boosted their prices by hoarding their supply. They’ve kept half a year’s supply of aluminum—a few million tons—off the market, and made half a billion dollars off the resulting price increase, Harbor says. At the same time, one major aluminum supplier—Alcoa—is taking advantage of tariff exemptions by moving production outside the U.S. The company has cut costs by moving some “can sheet” production to Saudi Arabia over the last year. The company then ships the can sheet back to the U.S. tariff-free under an exemption granted by Commerce Secretary Wilbur Ross. Yet it still prices the metal Coors purchases as if it were tariffed.

This sort of market manipulation extends to the aluminum scrap market. According to Harbor, some 53% of all aluminum consumed in the U.S. comes from recycled scrap, which carries no tariff at all. Scrap makes up at least 71% of the aluminum in a can of Coors, yet Alcoa and others charge us the same price we’d pay for aluminum from China, including tariffs.

It isn’t only rolling mills, smelters and traders that are taking advantage of the market distortion tariffs created. As tariff talk heated up in January 2018, the fee to transport and store aluminum in the U.S. spiked by 140%, and it has stayed there since, according to Harbor. Yet Harbor says the real underlying costs of transport and storage are down 18% from a year ago; even though shipping costs are higher than they were one year prior, they are 22% down from their peak last October, and trucking costs have declined 17% from last year. This fee isn’t set by a competitive market but by large suppliers who base the rate on a price quote from one company, S&P Global Platts. That quote comes from a black-box survey of mostly traders, who provide prospective bids rather than prices from completed contracts. The fee now accounts for nearly 20% of the cost of aluminum in 90 million beverage cans produced in America each year, according to Harbor.

American companies like Molson Coors will continue to contend with these anticompetitive antics. We get one-third of our aluminum from Alcoa. Even though Mr. Trump lifted the North American tariffs in May, Coors fully expects Alcoa will continue to charge us as if the tariffs remained in place. That takes some gumption.

A year ago, I wrote in these pages that I hoped market forces would set the aluminum industry right. It now is clear that government intervention and oversight are necessary.

Molson Coors urges the president to investigate the aluminum industry and the conduct of its biggest actors. We ask for the same regulatory and legislative oversight that is applied to other commodities. This metal is too critical to America’s strategic goals to be left to the whims of speculators and the manipulation of a cozy clique of suppliers.

Mr. Coors is vice chairman of the Molson Coors Brewing Co.