U.S. tariffs meant to protect industry cutting earnings of this Whatcom employer

U.S. aluminum tariffs that were meant to protect the industry from foreign competitors are instead taking a bite out of the earnings of the nation’s largest producer.

Alcoa Corp. lowered its 2018 profit projection as tariffs on imported aluminum present what Chief Executive Officer Roy Harvey is calling a “significant” headwind. The manufacturer has been hit with $15 million in costs so far on material it produced mostly in Canada and shipped to the U.S. The company also cited higher energy costs and lower aluminum prices for the cut.

Aloca has an aluminum smelter facility near Ferndale. At the end of 2017, Alcoa Intalco Works employed nearly 700 people in Whatcom County.

The forecast adds to concerns for commodity investors over the potential impact of the tariffs, with metal prices and producer shares languishing amid growing concern that a trade war could hamper economic growth. Harvey zeroed in on the levies slapped on shipments from Canada, where Alcoa was expected to make 28 percent of its primary aluminum this year, according to Bloomberg Intelligence.

“Everyone assumed as did we that there would be an exception in place for Canadian production, so that has turned out not to be the case and that is a pretty significant impact for us,” Harvey said in a phone interview.

Adjusted earnings before interest, tax, depreciation and amortization is forecast to be $3 billion to $3.2 billion, down from a previous estimate of $3.5 billion to $3.7 billion, Alcoa said in a statement Wednesday.

Harvey said that while demand remains robust, there are concerns that industrial customers could eventually move operations outside of the U.S. so they can buy metal that’s not subject to the duties.

At the same time, the Pittsburgh-based manufacturer reported higher-than-expected sales and earnings for the second quarter.

Aluminum has slipped about 26 percent from an almost seven-year high reached in April in the wake of U.S. sanctions on Russian producer United Co. Rusal.

“The guidance cut is mostly due to lower commodity prices as Alcoa’s guidance is based on current prices, but higher energy costs and U.S. tariffs were also factors,” Chris LaFemina, an analyst with Jefferies who rates the stock a “buy,” said in a note.

The company also said it sees a deeper global production shortage in the metal this year as it pared its outlook for excess supply coming out of China.

Demand will exceed supply by 1.1 million to 1.5 million metric tons, Alcoa said Wednesday in its earnings presentation. That compares with an April forecast for a deficit of 600,000 to 1 million tons.