RPT-COLUMN-Aluminium flows shift after Trump doubles down on tariffs: Andy Home

Reuters
07/30
RPT-COLUMN-Aluminium flows shift after Trump doubles down on tariffs: Andy Home

Repeats Tuesday's column with no changes to the text

By Andy Home

LONDON, July 29 (Reuters) - Canadian aluminium smelters have started diverting primary metal away from the United States in response to the ratcheting up of import tariffs, first to 25% in March and then to 50% in June.

Alcoa Corp AA.N, which operates smelters on both sides of the border, has since March sold more than 100,000 metric tons of Canadian metal to consumers outside of the U.S., the company told analysts on its quarterly earnings call.

U.S. imports of primary aluminium dropped sharply in April and May even before U.S. President Donald Trump sprang his second tariff surprise in June.

Some of the import gap is being filled by surging shipments of recyclable aluminium, which as a raw material is subject only to Trump's lower reciprocal tariffs.

Physical market dynamics are likely to remain highly fluid, dependent both on the U.S. premium and on Trump's willingness to grant exemptions.

PRIMARY IMPORTS DOWN, SCRAP UP

U.S. imports of primary aluminium spiked to a near two-year high of 442,000 tons in March as suppliers rushed to beat the first tariff deadline.

However, no-one saw the second hike coming and implementation was almost immediate, meaning there was no opportunity to front-run the new 50% rate. Indeed, May imports of 268,000 tons were the lowest monthly tally since December 2022.

Lower shipments from Canada have accounted for most of the volume decline. The largest supplier to the U.S. market is redirecting metal that is not committed on annual contracts, which in the case of Alcoa is around 30% of its Canadian production.

Aluminium is being re-routed to Europe, with WBMS trade data showing Canada exported 11,800 tons to the Netherlands in April and 25,500 tons to Italy in May.

Imports of aluminium scrap, on the other hand, are accelerating thanks to the differential between reciprocal and aluminium tariffs. Arrivals totalled 227,000 tons in March-May, up 40% on the same period of 2024.

There has been a noticeable step-up in imports from Europe, albeit from a low base, which has led to the European Commission activating its trade surveillance system prior to possible export restrictions. It has promised a decision by the end of September.

MARKET WATCH

The U.S. Midwest premium AUPc1 has surged from 24 cents per lb ($520 per ton) in January to 68 cents in reaction to the double tariff hike.

That, however, is still not enough to cover the tariff costs for Canadian metal, according to William Oplinger, Alcoa president and CEO.

Accounting for both the tariff and the base costs of transport to U.S. consumers, the Midwest premium needs to be somewhere between 70 and 75 cents per lb, he said.

Buyers are drawing down inventory rather than committing to new spot purchases as they wait to see whether there will be exemptions to what are currently blanket tariffs.

POLITICS WATCH

They are right to do so.

There are signs that the Trump administration may lower or even eliminate aluminium tariffs for those countries signing up to broader trade deals.

That with the United Kingdom, for example, included a reduced 25% import tariff for both aluminium and steel products.

The freshly-minted deal with the European Union also comes with a potential carve-out for steel, aluminium and copper, according to European Trade Commissioner Maros Sefcovic.

European and U.S. trade negotiators have found common cause in the form of Chinese over-capacity, he said. The higher tariff rate will stand for now, but the two sides are working on a "metals alliance" that would see tariffs replaced with a quota system.

It would be strange for Canada not to be included in such an alliance, given the country's importance to U.S. aluminium supply.

HIGH SMELTER RESTART COSTS

While the tariff landscape continues to shift, one thing is for sure. It's going to be a long time before the U.S. has enough smelter capacity to reduce its import dependency.

Although there are two new smelter projects, they are competing with Big Tech for low-cost power. Even if they can lock in energy supply, they would take many years to construct.

The U.S. also has around 670,000 tons of idled smelting capacity, according to the United States Geological Survey.

But much of it is old and needs significant investment. Alcoa has one 50,000-ton-per-year line idled at its Warrick smelter in Indiana, but it would take around $100 million to refurbish and a year to ramp back up to full production.

"We would need to ensure that the tariffs will stick around for quite a while" to justify a restart decision, Alcoa's Oplinger told analysts.

Tariffs in one shape or another seem likely to stay, but how many trade partners can duck the full 50% tariff rate is an increasingly open question.

Until the picture becomes clearer, there are not going to be many U.S. smelter restarts.

But there is going to be a lot more volatility in the physical supply chain.

The opinions expressed here are those of the author, a columnist for Reuters.

US imports of primary aluminium drop after March tariff hike https://tmsnrt.rs/3IPsyeG

Aluminium scrap surges through the US tariff loop-hole https://tmsnrt.rs/4mh8DUf

US aluminium premium soars after tariff hike https://tmsnrt.rs/412MYHB

(Editing by Jan Harvey)

((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter https://twitter.com/AndyHomeMetals))

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