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UNITED STATES DEPARTMENT OF COMMERCE BUREAU OF INDUSTRY AND SECURITY Washington, D.C. ) IN THE MATTER OF ) ) ) SECTION 232 NATIONAL SECURITY ) INVESTIGATION OF IMPORTS OF ) NON-CONFIDENTIAL ALUMINUM ) ) ) ) ) WRITTEN COMMENTS OF US MAGNESIUM LLC Jennifer Lutz Stephen A. Jones Benjamin J. Bay ECONOMIC CONSULTING SERVICES, LLC KING & SPALDING LLP 2001 L Street, NW, Ste. 1000 1700 Pennsylvania Avenue, NW Washington, D.C. 20036 Washington, D.C. 20006-4706 (202) 466-7720 (202) 737-0500 Economic Consultant for US Magnesium LLC Counsel for US Magnesium LLC June 23, 2017 NON-CONFIDENTIAL I. INTRODUCTION On April 26, 2017, the Secretary of Commerce initiated an investigation under Section 232 of the Trade Expansion Act of 1962, as amended, 1 for the Department of Commerce ("Commerce") to determine the effects on the national security of imports of aluminum. On May 9, 2017, Commerce published a Federal Register notice stating that it would conduct a public hearing on June 22, 2017, and that written comments should be filed by June 29, 2017.2 Pursuant to Commerce's notice, US Magnesium LLC ("US Magnesium") submits the following comments. II. EXECUTIVE SUMMARY US Magnesium is headquartered in Salt Lake City, UT, and has its production facility on the western shore of the Great Salt Lake in Rowley, UT. The only remaining U.S. producer of commercial quantities of primary magnesium, US Magnesium directly employs about 440 people and indirectly employs hundreds more. As such, it is the largest and most important supplier of magnesium to U.S. companies producing aluminum alloys. Virtually all aluminum alloys contain magnesium, which provides critical hardening properties to aluminum alloys. All of these alloys are important for the aluminum industry and therefore critical to the health of the national economy. Because almost all aluminum alloys require magnesium, and because the domestic manufacture of products made from aluminum alloys is critical to U.S. national security, the domestic production of magnesium is also critical to U.S. national security. I 19 U.S.C. § 1862. 2 Bureau of Industry and Security, Notice ofRequest for Public Comments and Public Hearing on Section 232 National Security Investigation ofImports ofAluminum, 82 Fed. Reg. 21509 (May 9, 2017). A second notice was subsequently issued changing the deadline for the submission of written comments to June 23, 2017. Bureau of Industry and Security, Change in Comment Deadline for Section 232 National Security Investigation ofImports ofAluminum, 82 Fed. Reg. 25597 (June 2, 2017). 288154 NON-CONFIDENTIAL In addition, magnesium is required for the production of other military-critical products, such as steel, nodular iron, titanium, beryllium, and zirconium. Magnesium is also used directly as a component in illumination and countermeasure flares, heater packets, and aerospace castings for the military. Domestic production of magnesium is therefore critical to the ability of Department of Defense ("DOD") to source the material needed for these products. Magnesium is an import-sensitive material, and US Magnesium and its predecessor, Magnesium Corporation of America, have been combating dumped and subsidized imports of pure, alloy, and granular magnesium for many years. The Department of Commerce imposed antidumping duty orders on imports of magnesium from China in 1995, 2001, and 2005. Those orders, however, have not eliminated the adverse impact of China on US Magnesium or the global magnesium market. Massive overcapacity in China has depressed markets worldwide, diverting magnesium to the relatively higher prices available in the United States. China produces over 85 percent of global magnesium requirements and has the capacity to supply more than 100 percent of global demand. With capacity utilization rates under 60%, Chinese excess capacity, overproduction, and pricing practices have destroyed the formerly vibrant magnesium industries of Canada, Japan, and Europe, which no longer exist. Now, the U.S. industry is in danger. Twenty years ago, there were three domestic primary magnesium producers with nameplate capacity of 168,000 MT. Today, only US Magnesium remains. In 2006, Canada had 123,000 MT of primary magnesium capacity. Today, it has none. New capacity continues to be installed in China, with a massive new production facility in Qinghai province coming on line just this year. That facility has been commissioned to produce 100,000 tons per year, which constitutes, by itself, almost enough capacity to supply the entire U.S. market. -2- 288154 NON-CONFIDENTIAL US Magnesium is adversely affected by imports of pure, alloy, and granular magnesium from Israel, Russia, and Turkey, among other countries. Imports from Russia and Turkey have increased significantly in recent months. In addition, other product forms, such as secondary alloy magnesium, magnesium scrap, and magnesium reagents for steel production are entering the United States in increasing volumes from many countries and taking market share from US Magnesium. These additional volumes have resulted in price declines that are harming US Magnesium's financial condition, employment, and ability to invest in capacity to supply the U.S. market. While US Magnesium has recently invested [ ] in the equipment needed to expand its capacity, it has not been able to utilize this capacity due to adverse market conditions. The company cannot continue to invest in maintaining or adding additional capacity to supply the aluminum industry without assurance that it will be able to operate profitably in the United States. In fact, without a significant improvement in conditions, it [ ] produce magnesium in the United States. US Magnesium believes that the health of the domestic aluminum industry is critical to national security, and as such, the industry should be granted relief Likewise, US Magnesium believes that the domestic magnesium industry is critical to national security. Accordingly, US Magnesium requests that the Department of Commerce determine that imports of magnesium threaten to impair the national security of the United States and impose trade relief to ensure that the U.S. magnesium industry can survive and grow. - 3 - 288154 NON-CONFIDENTIAL Ill. BACKGROUND A. Overview of Magnesium Production in the United States The magnesium industry has been important to the national security of the United States since its inception. 3 The first magnesium plants were built in the United States during World War I by General Electric, Dow Chemical, American Magnesium Company, and others. Demand declined after the war, and by the late 1920s, only Dow continued production. That changed when the United Stated entered World War II. Dow continued production, but the Federal government established thirteen new magnesium plants to meet the military's need. By the end of World War II, U.S. production capacity was 291,000 tons per year. Much of that capacity was taken off line after World War II, but production was again revived during the Korean War. After the Korean War, Dow operated its plant in Freeport, Texas and a government-owned plant in Velasco, Texas at full capacity to build a government stockpile- highlighting the strategic importance of magnesium to the military. This stockpile was gradually depleted and eventually terminated in 1975, making the United States completely reliant on the domestic magnesium industry to meet any increased demand in times of military action or national emergency. Dow's business focus shifted in the early 1970's, and it eventually closed the Velasco plant and operated only the Freeport plant. Alcoa entered the magnesium industry in the early 1970's, opening Northwest Alloys in Addy, Washington in 1976. National Lead Industries operated a plant on the shore of the Great Salt Lake and commenced magnesium production there in 1972. In 1980, AMAX, Inc. acquired the National Lead Industries plant, brought the 3 This discussion is based on an article written by Marvin B. Lieberman, a Professor of Policy at UCLA's Anderson School of Management, dated August 17, 2000, entitled "The Magnesium Industry in Transition." The article was obtained from Dr. Anderson's web site at http://www.anderson.ucla.edu/faculty/marvin.lieberman/publications/MagnesiumlndustryTransit ion2001.PDF. A copy of the article is included as Exhibit 1. -4- 288154 NON-CONFIDENTIAL plant to design capacity, and sold it to Magnesium Corporation of America ("Magcorp") in 1989. In the early 1990's, imports began to flood into the market, first from Canada, then from Russia and China. Although antidumping duty orders and countervailing duty orders were imposed on imports from Canada in 1992 and on imports from China in 1995, the severe price pressures in the market caused Dow to close the Freeport plant in 1998 (after rising water from a hurricane damaged the plant) and Alcoa to close Northwest Alloys in 2001. In 2001, Magcorp filed for bankruptcy protection, and its assets were purchased out of bankruptcy in 2002 by US Magnesium. Since that time, US Magnesium has been the only U.S. producer of commercial quantities of primary magnesium. B. Overview of US Magnesium US Magnesium harvests brines from the Great Salt Lake to produce magnesium. US Magnesium directly employs 440 people, and indirectly employs hundreds more, such as contractors and service providers in Tooele County, Utah. United Steelworkers Union Local 8319 represents workers at US Magnesium's plant, and the union supports US Magnesium's efforts in this Section 232 investigation. US Magnesium produces pure magnesium (containing at least 99.8 percent by weight of magnesium), alloy magnesium (containing less than 99 .8 percent by weight of magnesium), and magnesium granules, as well as recovering and selling a variety of byproduct chemicals. 4 C. U.S. Magnesium Production is Critical to National Security As noted above, US Magnesium is the last remaining producer of primary magnesium in the United States. Twenty years ago, there were three U.S. producers.5 Today, only US 4 http://usmagnesium.com/products/; http ://usmagnesium.com/products/chemicals/. 5 https://minerals.usgs.gov/minerals/pubs/commodity/magnesium/400498.pdf.