By Victor Reklaitis, MarketWatch
Brewers and producers of soda and other canned drinks are continuing to lobby this fall for the U.S. government to take a greater role in aluminum pricing, as a key benchmark for that metal hasn’t dropped much from last year’s tariffs-induced high.
The Beer Institute, a trade association for American brewers, last month cheered a House panel’s call for a Government Accountability Office study of aluminum markets, adding that Congress should also pass a bill known as the Aluminum Pricing Examination Act.
The APEX Act, re-introduced in the House and Senate earlier this year, aims to give “exclusive jurisdiction over the setting of reference prices for aluminum premiums” to the Commodity Futures Trading Commission. Beverage companies are especially bent out of shape over S&P Global’s /zigman2/quotes/208931849/composite SPGI +1.44% Midwest Premium, a key benchmark for aluminum prices that determines the cost of cans.
The heads of the Beer Institute and American Beverage Association blasted the Midwest Premium in a Washington Examiner op-ed last month, saying it’s a “complicated, obscure pricing system.” Suppliers “charge the Midwest Premium, a price which reflects the full tariffed price of aluminum, even on aluminum not subject to the tariff,” they wrote.
Following the Midwest Premium’s climb in March 2018 as the Trump administration imposed tariffs, beverage producers paid an additional $458 million in aluminum costs between March 2018 through July 2019, according to the two trade groups. While other aluminum benchmarks /zigman2/quotes/210598267/realtime XX:DJCIIA +0.09% have retreated significantly this year from their 2018 highs as the Trump administration removed U.S. tariffs on Canada and Mexico, the Midwest Premium has not, as shown in the chart below. The Beer Institute and American Beverage Association’s op-ed criticizing aluminum pricing follows a similar Wall Street Journal piece in July by Molson Coors Brewing Co.’s /zigman2/quotes/205165133/composite TAP +0.79% Pete Coors.
“Brewers of all sizes have seen their aluminum costs increase beyond what the tariffs warranted,” said the Beer Institute’s president and CEO, Jim McGreevy, in a statement on Thursday to MarketWatch. “Brewers need certainty for the commodities they purchase. The APEX Act and the GAO study are critical in providing greater analysis and transparency to aluminum benchmarking.”
S&P Global, for its part, has pushed back hard against the APEX Act, criticizing the measure in a recent position paper for potentially leading to “unrestricted government authority over commodity pricing.”
The bill is “not only misguided but unnecessary because it’s premised on a disproven claim of price manipulation that has already been refuted by the CFTC,” said Christopher Davis, Americas price reporting director for metals at S&P Global Platts, in a statement on Thursday. “Regulators already have authority to oversee aluminum markets to ensure they’re properly functioning and investigate any attempts at distortion. Independent price reporting agencies like S&P Global Platts are trusted for objective, transparent price reporting methodologies.”
Regarding the possible GAO study of aluminum markets, Davis said any study would show the American market “has reacted to the imposition of U.S. import tariffs because the U.S. imports roughly 90% of the aluminum it consumes. Roughly 35% to 40% of that material remains subject to tariffs even after tariffs on Canada were removed.”
S&P Global has spent $1.37 million on Washington lobbying so far this year, with the APEX Act ranking as its top issue, according to an OpenSecrets.org analysis of disclosures filed through October. The Beer Institute and American Beverage Association have shelled out $1.97 million and $1.01 million, respectively, over the same period on trying to influence lawmakers and regulators, focusing on the APEX Act as well as bills related to tax cuts , a truck-driver shortage and other issues.
Besides S&P Global, the Beer Institute and the American Beverage Association, other enterprises that have disclosed lobbying on the APEX Act this year include Beer Institute member Anheuser-Busch InBev /zigman2/quotes/209225053/composite BUD +0.14% and ABA members PepsiCo /zigman2/quotes/208744353/composite PEP -0.05% , Coca-Cola /zigman2/quotes/209159848/composite KO +0.40% and Keurig Dr Pepper /zigman2/quotes/201754990/composite KDP -0.07% as well as exchange operator CME Group /zigman2/quotes/210449693/composite CME -2.75% .
The fight over aluminum pricing comes as brewers increasingly use aluminum cans rather than glass bottles. Last year, 64% of the beer produced and sold in the U.S. came in cans, up from 56% a decade ago, according to Beer Institute data.
This report was first published on Nov. 7, 2019.