Beverage Industry Trade Groups Fear Tariffs Will Cause Aluminum ‘Price Gouging’ as Brewers Face Increased Costs

Concerns over potential price gouging are mounting after President Donald Trump signed an executive order last Thursday to impose a 10 percent tariff on imported aluminum.

In a letter sent yesterday to Secretary of Commerce Wilbur Ross, four beverage trade groups — the Beer Institute (BI), Brewers Association (BA), Can Manufacturers Association (CMI) and American Beverage Association — cited “major concerns about how the 10 percent tariff could cause price-gouging within aluminum markets.”

Those groups again asked the Trump administration to exclude aluminum can sheet from the new tariff which, along with a 25 percent tariff on foreign steel, is set to take effect on Friday, March 23.

The good news for brewers packaging their products in aluminum cans, however, is that Canada, Mexico and Australia all received temporary exemptions. The largest importer of aluminum into the U.S. is Canada, according to Jim McGreevy, the CEO of the BI.

Nevertheless, the theoretical cost of transporting aluminum from the East Coast to smelting plants located in the Midwest has already risen 10 cents, the letter stated.

The four groups claim that the “Midwest Premium Price (MWP) — one of the factors used to determine the final cost of aluminum — has “spiked from 9 cents to 19 cents per pound.”

“Each penny movement in the MWP means hundreds of millions of dollars to the beverage industry,” the groups wrote.

“Rather than being a measure of the cost of storing and shipping aluminum, the MWP has become a device to artificially raise the price paid for aluminum by end users, and to enrich producers, traders, and other market participants,” the groups added. “We would like to know how the Commerce Department intends to address these spikes in pricing to protect end-users from price gouging in the market.”

The trade associations also asked the the Commerce Department for protections against tariffs on the supply of aluminum being stored in warehouses and in producers’ inventories as well as offshore companies who are likely to benefit by raising their prices on their products and passing them on as they’re exported to the U.S.

“We hope that excluding can sheet from the 10 percent tariff coupled with protections again [sic] price gouging, warehousing, and offshoring will go a long way toward protecting the 97 percent of the aluminum industry that are downstream users,” the four groups wrote.

But at the end of the day, the question most industry stakeholders want to know is how much the 10 percent tariff will actually add to the cost of a can.

About 1 penny, according to Robert Budway, the president of the Can Manufacturers Institute (CMI).

If true, a craft brewery producing around 10,000 barrels could be on the hook for about $20,000 in added packaging expenses.

Speaking to Brewbound, Castle Island Brewing founder Adam Romanow said his company will likely brew about 10,000 barrels and will package about 65 percent of its beer in aluminum this year. The brewery, based in Norwood, Mass., spends about $130 to purchase 1,000 cans and and plans to purchase around 2 million cans in 2018.

Romanow said he hadn’t yet determined how his company would handle the potential increases, but would be hesitant to pass those costs onto consumers.

“In a market that is as crowded as craft beer is, you are starting to see some price sensitivity,” he said.

“It would be tough to justify a price increase of 24 cents per case,” he added, noting that additional markups across at the wholesaler and retailer tiers could amount to a total price increase of about 50 cents per case.

According to CMI’s most recent annual report, more than 37.8 billion alcoholic beverage cans were shipped in 2016. Budway told Brewbound that a pound of aluminum can sheet can make in excess of 30 cans, but he declined to share how much beverage makers pay for can sheet.

What is known, however, is that 98 percent of the can sheet used to produce U.S. beverage cans is produced domestically, according to the BA. Approximately 66 percent of imported aluminum comes from Canada.

Another report, prepared by economic research firm John Dunham & Associates, said the beer industry spends about $5.4 billion annually on cans, of which $2.5 billion is on aluminum. The firm added that imported aluminum accounts for about “4.68 percent of the cost of beer.”

The BI’s McGreevy has stated that the aluminum tariff amounts to a $347 million tax on American brewers and could lead to the loss of more than 20,000 jobs. McGreevy told Brewbound that exemptions for countries such as Canada, Mexico and Australia do not change those potential economic impacts.

“They’ll only be exempt if further negotiations go well, so at this point, they’re not exempt completely,” he said. “And No. 2, this changes the base price for aluminum and raises it 10 percent.”

Lester Jones, chief economist for the National Beer Wholesalers Association, added that costs will add up for the beer industry, which is reliant on aluminum and steel. He added that regardless of how big the tariffs are, they will “put upward pressure on the pricing environment for small brewers and big brewers” and increase the costs of labor, ingredients, kegs, brewing equipment, shelving, racking and cans, among other things.

“The greater impact is going to feed back into everything you do as a business,” he said.

And those costs are likely to hit consumers. Renee Robinson, director of corporate communications for Colorado-headquartered Ball Corporation, the world’s largest manufacturer of beverage cans, told Brewbound via email that the tariffs are likely to “have negative downstream impacts on food and beverage manufacturers, as well as increased prices for consumers.”

CMI’s Budway added that the tariffs open the U.S. up for retaliation from other countries.

“These kind of targeted tariffs are bad because retaliation is on the table, and you can see that from the EU [European Union], we’ve seen the Chinese talk about it, and we don’t know where this ends,” he said. “I urge the president and the administration to be cautious about the unintended consequences that can flow from this action, which is largely being undertaken to appease the president’s base and those in the base may be the people most hurt by this in the end.”

McGreevy said he’s hopeful that the Commerce Department will issue guidance about the exemption process by the end of the week. As the exemption process plays out, He added that it will “give us a real sense of what the ultimate impact will be to beer.

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