Final Thoughts: SAFE and supply chains

One speaker addressed an “off-earth manufacturing base for the spacefaring society.” Another talked about mining Helium-3 on the moon. He said his company should have offtake contracts by 2028. That means it will be generating revenue before getting to the moon in the early 2030s.

Let’s just say the budgeting process here at SMU works a little differently.

Seriously, though, it was a good, thought-provoking event. SAFE is a think tank focused on energy and supply chain policies – which means its work (and events) are very timely right now.

Aluminum was there. Maybe steel should be too?

Century Aluminum CEO Jesse Gary spoke about the Chicago-based company’s plans to build a new smelter in Oklahoma – a development made possible in part by Section 232 tariffs. “Once that (S232) came into effect, it allowed us to build a wall to offset that subsidization that was going on in China – and to begin to reinvest here at home,” he said.

Atlantic Alumina CEO Charles Williams stressed the importance of shoring up domestic supply chains in the US, where his company operates the last domestic alumina refinery in Louisiana. The US in 2000 made more alumina than China. Now, the US produces only 1 million tons per year (tpy) while China churns out 82 million tpy.

“They have totally dominated and transformed our sector in the last 25 years,” Williams said. The US isn’t making the same mistake when it comes to AI, where domestic companies are investing hundreds of billions of dollars. “We have to win that race, unquestionably,” he said. “But we must also now do a huge industrial catch up.”

And J. Duncan Pitchford, president of Hydro Aluminum Metals USA, warned of “non-economic” exports of nonferrous scrap from Europe to Southeast Asia – much of which is being hoovered up by China’s growing secondary aluminum sector. “If we aren’t careful in the United States, we could face the same challenge,” Pitchford said, describing aluminum scrap as a “national security asset.”

Why should steel be in the room? Because so many of the big topics at SAFE Summit overlap with what’s discussed at Steel Summit for years. (Editor’s note: Steel Summit is Aug. 24-26 in Atlanta. You can register here.)

Global supply chains in a deglobalizing world

A central theme at the event – highlighted by the Iran war – was the vulnerability of global supply chains in a deglobalizing world. And one where competition between the US and China has intensified.

Vessels now circumvent the Red Sea to avoid Houthi attacks. There are disagreements between the US, China, and Panama over who controls access to the Panama Canal. Add the recent blockade of the Strait of Hormuz to the mix, and it only make sense to game out what might happen if conflicts spill into the Strait of Malacca, the South China Sea, and other chokepoints.

And that’s just the geographical ones.

A warning on China from rare earths

Another big theme was what might be an even bigger chokepoint: the concentration not only of key raw materials but also of entire supply chains in China. And, related to that, whether the cheap prices US consumers have enjoyed over the last three decades thanks to the scale of Chinese industry are worth the price the US has paid in terms of hollowed-out industries and communities.

The obvious solution is to mine more and make more here. Steel has done that. But it’s an uphill climb in other sectors.

The situation is particularly dire when it comes to rare earths, where the US lags behind China in terms of mining capacity and even further behind in refining capacity. And China put the power of its rare earths card on full display last year, when Beijing restricted rare earth exports in response to US tariffs – causing shortages felt by domestic automakers.

Automotive vulnerable too

In fact, China’s industrial might all along the automotive supply chain – which has key linkages to military manufacturing – was a big concern.

The immediate worry: Could President Trump – who likes headlines about big investments in the US and job creation – make a deal with China to allow a Chinese automaker like BYD to build in the States? Conference speakers (and domestic steelmakers) don’t want to see that.

The longer-term issue: China has invested heavily in industrial robots and has dominated EV production. The US, in contrast, partly because of reduced emissions regulations, has doubled down on traditional internal combustion engine (ICE) vehicles – just in time for rising gas prices to spark renewed consumer interest in EVs.

Notably, in used EVs, said Johnathan Smoke, chief strategy officer at Cox Automotive. It only makes sense. The average cost of a new vehicle in the US is $49,275. The average cost of a used EV – most of which aren’t very old – is $34,653. “Consumers are gobbling them up,” he said, noting that EVs have become “less of a political issue and more of a personal decision.”

Meanwhile, the United Auto Workers (UAW) union, concerned about preserving jobs, has fought automation. Let’s say a UAW leader understands automation is necessary for the future health of the industry. Could they lead members to support a transition? Or would they be wildcatted out? (The latter, apparently.)

I mention those examples because another theme emerged again and again. How does decentralized, US-style capitalism (with its focus on short-term profit) compete with China’s command-and-control model (which takes the long view)?

Take mining. It might take a decade or more for a mine to turn a profit in the US. And even the most long-term investors balk at timelines like that. Conference speakers discussed price floors, government offtake agreements, and other non-traditional methods to reduce risk. Will those efforts work? I hope so.

The Iran war, USMCA, and ‘affordability’

Looming over all these discussions, whether about making things in space or outside of Tulsa, were questions over the duration of the Iran war. And the potential economic impact if it drags on.

“We’re two months into this now. It’s very early in the process to say, ‘Well, markets don’t care about this, and the oil price is only $106 a barrel – this might not be so bad,’” said Sam Ori, executive director of the Institute for Climate and Sustainable Growth at the University of Chicago. “I think if this goes on for another three months, peoples’ view of that is going to change.”

Another big concern: how much supply chain uncertainty can manufacturers deal with – especially in automotive when it comes to USMCA discussions? And how much additional cost can consumers afford to shoulder? “We are a country that is dependent on personal transportation, and yet the ownership of a personal vehicle is becoming increasingly challenging,” Cox Automotive’s Smoke said.

Signs of a functional Congress?!

If there was a silver lining (even if we don’t have enough silver mining), it’s that both Republicans and Democrats seem to agree reshoring is necessary. And they think the legislative process would provide the certainty presidential executive orders lack to make it happen.

Rep. Ami Bera (D., Calif.) and Rep. Young Kim (R., Calif.) shared a stage to present their joint effort to advance a bill, the Dominance Act, in the House. It aims to reduce US reliance on China. Related measures are under consideration in the Senate and also have bipartisan support, they noted.

And, hey, if Congress becomes functional again, anything is possible. Even mining for Helium-3 on the moon by the end of the decade.

SMU Community Chat

Speaking of supply chain issues, don’t forget to tune into the next SMU and AMU Community Chat on Thursday, May 14, at 11 am ET. Our featured guest will be Anton Posner, CEO of Mercury Resources.

We’ll discuss the blockade of the Strait of Hormuz, congestion on the Panama Canal, the resulting higher costs for fuel and vessels – and what it means for your business.

We’ll take your questions too. So don’t forget to bring some good ones to the Q&A. You can register here.