The US aluminium market responded negatively to confirmation that Section 232 tariffs would be implemented on steel and aluminium imports from the European Union, Canada and Mexico.
US Commerce Secretary Wilbur Ross confirmed during a call with reporters on Thursday May 31 that President Donald Trump's administration will impose the Section 232 tariffs, thus allowing previous exemptions to the tariffs - 25% for steel and 10% for aluminium - to expire at 12:01 am Eastern time on June 1.
Market participants expressed shock that Trump would opt to levy the tariffs against the two North American trading partners and the European Union, with some expecting regional premiums to rise as a result of the decision.
“Everyone’s just in shock right now trying to digest [the news],” one trader source told American Metal Market. “Very little details. Obviously [the US government is] just letting exemptions expire, and effective [Friday] we’ll have to pay a duty. So everyone is just in shock.”
But other sources said that the cost of the tariff has already been incorporated into the Midwest premium, and thus a seismic shift in premiums is not expected to occur.
“The tariff seems to be ‘it is what it is,’” one supplier source said. “I think most are just accepting it as a pass-through cost.”
American Metal Market’s latest assessment of the US Midwest aluminium premium placed it at 21.25-21.75 cents per lb on May 29, down 4.4% from a more than three-year high of 22-23 cents per lb reached in early April.
CME Midwest premium futures for 2018 ticked up a half-cent following Ross’ comments, bringing the June contract to 21.75 cents per lb.
Market participants are happy to have some level of clarity due to Ross’ announcement, although there are lingering doubts as to how certain this decision will be.
“As an observer and a market participant, I’m going to keep watching to see if this is going to stick,” a second trader told American Metal Market.
“I would say there is still too much uncertainty since this administration is a joke,” a third trader said. “It’s great that we know, better than last month, [but there is] still a decent amount of uncertainty.”
Trump has not yet commented on the tariffs publically, with his Twitter feed not reflecting anything about the tariffs and instead focusing on other topics.
Various trade groups condemned Trump for choosing to levy the tariffs against the European Union, Canada and Mexico.
“Today’s action does little to address the China challenge while potentially alienating allies and disrupting supply chains that more than 97% of US aluminium industry jobs rely upon,” Aluminum Association president and chief executive officer Heidi Brock said in a statement on May 31.
“During a time of record demand for aluminium in the United States, it is critical that aluminium producers across the value chain have a steady and reliable source of supply,” she added.
“This decision by the US administration will have negative impacts on the North American integrated aluminium value chain... The overall price of aluminium will increase, affecting small- and medium-size businesses both in Canada and the U.S. The consumers and companies that supply these consumers will suffer when prices go up as a result of these tariffs, ultimately undermining the competitiveness of the entire North American aluminum industry," according to Jean Simard, president and CEO of the Aluminium Association of Canada.
"Today is a bad day for world trade,” EU Commissioner for Trade Cecilia Malmström said. “We did everything to avoid this outcome... Throughout these talks, the US has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business, and certainly not between longstanding partners, friends and allies. Now that we have clarity, the EU's response will be proportionate and in accordance with [World Trade Organization] rules.”
The Mexican government has also vowed to take “reciprocal measures” against the US following the imposition of the duties.
Meanwhile, market participants in the US already plan to re-evaluate the flows of their metals.
“At least for the time being, I’ll elect to take my metal elsewhere,” the second trader source said. “Who’s going to supply [the US], how is it going to be supplied?”
The announcement by Ross might serve as a way for the US to have more leverage in renegotiating the North American Free Trade Agreement (Nafta), market participants told American Metal Market.
"Overall, I think an agreement of some sort will be reached rather quickly, even if it’s not exactly what the Trump administration had in mind," a buyer source said.
"No one really knows what is going to happen," according to a fourth trader. "You probably have the most journalistic license ever to write whatever you feel like, because only Trump knows what is going to happen! I mean to say, if car imports are now a threat to national security, what is next?"
Yet contrary to this, others said the tariffs could prove to incentivize more countries to avoid the US overall. According to Rio Tinto Aluminium chief executive Alf Barrios, the company “will move product around to optimize and provide secure supply to our customers,” he told American Metal Market in an interview last month.
“Basically, what Trump did was give smelters in Canada authorization to print money,” a fourth trader said, adding that the EU-Canada Comprehensive Economic and Trade Agreement (CETA) signed in 2016 will allow Canadian producers to ship primary aluminium to European countries cheaper.
US inflows of unwrought aluminium from Canada, Mexico and EU countries totaled 2.51 million tonnes in 2017, representing 51% of the 4.88 million tonnes imported in all last year. Canadian product constituted 2.46 million tonnes of the volume.
Michael Roh, New York, contributed to this article.