For decades, Camel cigarettes were wrapped with an ultrathin foil made at a plant in Winston-Salem, N.C. Then, last summer, the factory’s owner sold the facility as part of a strategy to buy more of its foil from China.
The first U.S. casualties of China’s dramatic ramp-up in aluminum production were smelters, a capital-intensive business that depends on low-cost energy. Now, Chinese imports are claiming a bigger part of the aluminum market, supplying the wraps for potato chips, pill packages and yogurt.
Camel’s original foil supplier, Alpha Aluminum Inc., first tried to diversify into heavier aluminum to survive. But in July, it suspended production, putting 100 employees out of work. The shut down leaves only one U.S. company still making the kind of light-gauge foil used to wrap food, pharmaceuticals and other consumer staples.
The U.S. market for all aluminum foils is worth roughly $5 billion, and is now 36% supplied by imports, up from only 16% in 2007, according to the Aluminum Association, an industry group.
The leading supplier is China, whose shipments of foil to the U.S. have risen almost 10-fold, to 265 million pounds, in the last decade.
With tiny Alpha’s exit and bigger aluminum makers like Alcoa Inc. AA -1.72 % and Novelis out of the commodity foil business, Goose Creek, S.C.-based JW Aluminum Co. is the only domestic producer left specializing in light gauge foil.
A few companies, including Reynolds Consumer Products, which makes kitchen foil in Louisville, Ky., still have large market shares in niche markets, but even the kitchen foils sold under grocery-store names are increasingly made from foil that is imported from China, say distributors.
Unlike the American steel industry, which also is facing a flood of Chinese imports but is bigger and has much more political clout, the aluminum industry hasn’t been as vocal about tariffs.
Lured by a rich and open market, Chinese companies like Zhenjiang-based Dingsheng Aluminum Group have bulked up their capacity.
For Dingsheng, the U.S. has become a critical part of its business. Guo Yu, a manager at one Dingsheng subsidiary, said the U.S. was appealing because its buyers tends to be larger companies, and orders are much bigger than in other markets such as the Middle East or India.
‘In China, when I ask for something, the answer is always ‘yes.’’
—Howard Lent, Alufoil Products president
A combination of government help and a buildup of consumer culture has boosted Chinese foil capacity to 3.7 million tons a year from 250,000 tons in 2004, and foil consumption to 2.4 million tons in 2014 from 594,000 tons in 2005, according to U.K.-based market researcher CRU Group.
In addition to having access to low-cost electricity from new Chinese power plants, aluminum producers also benefit from Chinese tax policy. China applies a 15% value-added tax rebate on exported foil, and a 15% duty on raw aluminum. Chinese producers deny the charge made by many U.S. producers that they get unfair subsidies or dump their metal in the U.S.
Among contracts that have been lost to foreign Chinese suppliers are for some of the U.S.’s best known consumer brands, including Wendy’s Co. and Capri-Sun, according to foil distributors and salespeople.
A spokesman for Wendy’s said the chain’s hamburger wraps are made from paper “mainly sourced from North America” and foil from Asia. A representative for Kraft Heinz Co. KHC 0.18 % , which owns the Capri-Sun juice brand, declined to comment.
The thin, flexible packaging foil, which is used to wrap food is the hardest hit, according to industry experts. At the start of this year, only two specialized producers remained, JW Aluminum, which has plants in South Carolina and three other states, and the now-closed Alpha Aluminum in Winston-Salem. JW Aluminum declined to comment for this article.
Alpha’s mill was built by cigarette maker R.J. Reynolds Tobacco Co. RAI -0.41 % in 1960, and sold to Alpha last year. Faced with competition from Chinese imports, Alpha began to diversify in favor of heavier aluminum products. But last month Alpha suspended operations, and is looking for outside investors, its owners say.
Robert Gamba, who recently resigned as Alpha’s chief executive, said margins at the 24-million-pounds-a-year plant had been consistently squeezed by imports, which are 20% less expensive than his products. “Buyers are always bringing up the prices they can get in China,” he said.
Alpha says a key factor in its closing the North Carolina plant was the previous owner, Oracle Flexible Packaging, Inc., overstated the value of assets. An Oracle spokesman declined to comment.
China’s cheaper prices became impossible to resist for Alufoil Products Co. Inc., a Long Island maker of aluminum foil and once an Alpha customer.
“A couple of years ago, I started buying much more from China, because it was cheap and usually pretty good quality,” says Howard Lent, 78-year-old president of the family-owned, 18 person-firm, which now sources 90% of its aluminum rolls from abroad, up from 40% a decade ago. Twenty percent of its supply now comes from China, up from a marginal amount a few years ago.
Mr. Lent says he’d “obviously prefer to buy all American,” but domestic suppliers can’t always give him the required specifications. “I get told ‘no’ too often in this country. In China, when I ask for something, the answer is always ‘yes.’ ”