US Al premium unlikely to move on Trump tariffs

The potential renewal of US aluminum tariffs on Argentina and Brazil threatened by the Trump administration this week would make few waves for the Midwest premium for P1020, according to market participants.

President Donald Trump accused Argentina and Brazil in a Tweet on 2 December of currency manipulation and vowed to restore steel and aluminum tariffs on the countries.

Most primary aluminum market participants surveyed by Argus expect little if any effect from the tariffs on the physical market for P1020, although some said it might provide support to the CME's Midwest premium futures for the first quarter.

Argentina provided about 4.5pc of the 4.2mn metric tonnes of primary aluminum imported by the US during the 12 months ended October, according to the most recent trade data. Brazil provided less than 1pc over the same period.

The two countries received exemptions from Section 232 tariffs in May 2018 as long as they agreed to not exceed quotas set by the US. But even this initial exemption was likely irrelevant for US P1020 supply, a former primary smelter executive told Argus.

"The fact they had been excluded was not enough to raise or drop the premium to begin with," he said.

Their absence becomes even less relevant to US supply when considering the recent rampup in primary aluminum production in other regions, some of which must be sold in the US market, which would likely fill any gap left by Argentina.

India, Qatar and Bahrain each contributed about 4pc to US imports during the 12 months ended October and are growing their output.

"They have to sell to the US. Where are they going to take all that metal?" the former smelter executive said.

Argentina's product mix is another factor muting implications of potential tariffs on the Midwest premium.

"It is unlikely to have an effect," a US merchant told Argus. "The Argentinians are more focused on value-added products than on P1020."

Value-added products include billet and slab, which fetch a higher premium to LME aluminum prices than undifferentiated metal such as P1020, which sets the Midwest premium.

The Midwest premium has dropped by about 3.5¢/lb to 15.25¢/lb since the beginning of the year, weighed down by the removal of Section 232 tariffs on Canada and an oversupply of scrap metal.

By John Betz