Shares of Century Aluminum Co (NASDAQ: CENX) closed 8.3% higher on Friday after Reuters reported that the U.S. Commerce Department, in the person of U.S. Secretary of Commerce Wilbur Ross, had recommended that President Trump grant "broad based relief" to U.S. aluminum companies struggling with unfair competition from overseas.
Secretary Ross reportedly recommended that the President consider imposing:
- a global tariff of "at least 7.7%" on all aluminum imports into the U.S.; or
- at least a 23.6% tariff on imports of aluminum from China, Hong Kong, Russia, Venezuela and Vietnam, combined with the simultaneous imposition of a quota capping aluminum imports from other countries at their 2017 levels; or
- a quota capping imports of aluminum from all countries at 86.7% of their 2017 levels.
The goal of these measures, whichever one is chosen, will be to increase U.S. aluminum production capacity to a level sufficient to ensure the long-term viability of the industry. In the secretary's opinion, this will require increasing utilization from the present rate of 48% industrywide, to approximately 80%.
That's the goal. The immediate effect of the protective measures -- again, regardless of which one is chosen -- will be to decrease the supply of cheap aluminum entering the U.S. market from abroad and permit U.S. producers such as Century Aluminum to increase both production and prices. That should mean a quick boost to both revenue and profits.
Century Aluminum was unprofitable over the past 12 months. That explains why its stock jumped so high on the prospect of nearly doubling its production capacity (potentially), which would logically lead to greater revenue and -- with luck -- profits. Other aluminum companies, which have suffered less than Century, enjoyed consequently smaller gains from today's news. Alcoa (NYSE: AA), for example, the bellwether of the industry, saw its stock rise only 5.5% at most during Friday trading -- and ended the day with a small loss.
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