Over my 33 years of working with the metal casting industry I have come across stories from owners on how they went about getting rid of particularly bothersome or bad customers. There have been many techniques (sometimes humorous) described to me. Fundamentally, many of the stories came down to charging the customer an added ‘aggravation’ tax. In other words, the castings they were selling were priced higher than they would normally sell to anyone else and that was justified because the difference was what was needed to put up with that particular customer.

I was reminded of many of these stories when I was listening to testimony at the magnesium tariff revocation hearing on December 7^th. It just did not make any sense to me why a rational business model of a company would be to price its product higher in the domestic market than it was pricing its product to anyone else in the world. The difference in price is not a few pennies on the pound. But then it all made sense to me on my flight back to Chicago. They are charging an aggravation tax on the alloy magnesium that they were selling to the domestic magnesium die casting industry.

Since the implementation of the tariffs in 2005, the U.S magnesium die casting industry has gone from 42 die casters pouring magnesium to 24. The pounds of magnesium die casting, in that same period, have been reduced by over 65%. OEM customers have moved away from designing for magnesium because of the cost. Over 1800 jobs have been lost at U.S magnesium die casting companies in the last three years.

I’m not completely sure of the motives, but it could be because there is a higher margin on pure magnesium than alloy magnesium. So, if you are at capacity and can make more money on pure magnesium than you can on alloy magnesium, you raise the price of the alloy magnesium to a point where you drive your alloy customers out of business. The reason they go out of business is because there are no other suppliers and the government has guaranteed a monopoly by placing exorbitant tariffs on imported alloy magnesium from China and Russia. Any other, non-subject, countries are not willing to enter the U.S market for fear of legal costs. And why take on the legal headaches when you can sell your product anywhere else in the world, such as Mexico.

The ITC will make their decision in early February 2011 on whether the tariffs should continue or be eliminated. NADCA and the magnesium die casters made the best case possible. Hopefully the ITC will listen to the industry and the Senators and Congressmen that have supported our cause.

In lifting the tariffs, the aggravation tax on domestic die casters will most likely go away and they may be able to once again compete globally.