The implementation of the threatened Section 232 tariff on US imports of European aluminium is unlikely to have any immediate effect on prices and premiums in Europe, market participants have said.
US Commerce Secretary Wilbur Ross announced on Thursday May 31 that aluminium originating from the European Union, Canada and Mexico will be subject to 10% tariffs - effective from 12:01am on Friday June 1 - after negotiations to extend temporary exemptions failed.
Market participants have taken much of the first half of the year to prepare for potential tariffs on EU-origin aluminium, which is why premiums are expected to remain stable for now.
“I think it has been so long, with the extensions [to the exemptions] and the multiple conversations, that the market has priced [the tariffs] in – both in the physical world and in futures. We have all had enough time to digest [the trade measure],” a trader in Europe said.
EU aluminium exports to the United States are also limited in volume, making the immediate effect of tariffs on the market even smaller.
In 2017, the US imported roughly 27,200 tonnes of unwrought aluminium from EU countries, according to the US International Trade Commission. This was a relatively small amount compared with imports from other nations and regions.
Canada, which exported 2.4 million tonnes to the US in 2017, will also face import tariffs in the US.
“European aluminium hasn’t found much of a home in the US,” a second trader said.
Of the 1,205,875 tonnes of aluminium sitting in London Metal Exchange warehouses, just 4.2% sits in warehouses in the US at Detroit, Owensboro and New Orleans, with no aluminium stored in approved warehouses in Chicago, Toledo, Alabama or Los Angeles.
“It doesn’t really mean anything, [because] the tonnages that go to the [United] States are so small,” a third trader said.
“No European producers [send material] to the US,” a fourth trader said.
The benchmark duty-unpaid, in-warehouse Rotterdam P1020 premium remained steady on May 31 at $118-128 per tonne, although bearish sentiment from a wide forward backwardation and renewed use of cheaper Russian metal has pushed the premium down by more than 20% since the beginning of May.
The London Metal Exchange three-month price remains steady, hitting a high of $2,290 per tonne on Thursday. The contract was on an upward curve throughout March and April because the threat of US tariffs and sanctions against Russian producer UC Rusal boosted prices, and hit a high of $2,587 per tonne on April 19.
“The [tariffs'] effect on the aluminium and steel markets should be limited and is already reflected in prices,” according to Carsten Menke, commodities research analyst at Julius Baer.
Change of flows
The European physical market could, however, be affected in the longer term if countries decide to start shipping material to Europe instead of the US. Canada has a free-trade agreement with the EU, known as the Comprehensive Economic and Trade Agreement (CETA).
“Canada is a [big issue], the EU is not,” the third trader said, referring to flows of material that might come to Europe.
A flood of Canadian metal heading toward Europe has not yet materialized, however, perhaps because the European market is on a downward trend.
According to a US trader, if the Rotterdam premium rises, then Canadian smelters will probably take advantage of CETA to start selling to the EU instead of the US.
“What [President Donald] Trump did [by imposing the tariffs] was give smelters in Canada authorization to print money,” the US trader said.
Kirk Maltais, New York; and Alice Mason, London, contributed to this article.