Aluminum producers in the US benefit from Trump's tariffs

Four industry sources say that President Donald Trump will benefit from the higher tariffs on imported metals as domestic prices rise.

Some industry players worry that Trump's decision to increase tariffs from 25% to 50% on June 4, could cause prices to soar that the demand begins to weaken.

The market price of the metal key used in the construction, energy and packaging industries is expected to increase revenues for U.S. aluminum producers and recyclers.

Customers are charged the London Metal Exchange price for aluminium plus a physical premium to cover additional costs, such as freight and taxes.

On Friday, the so-called Midwest Premium hit a record of 62.5 U.S. Cents per lb or $1,377 per metric ton. Since Trump's second term was won in November, the price has risen by nearly 190%.

Consultancy Harbor Aluminum stated that the premium would need to increase to 70 cents per lb or $1,543 per ton to reflect the full 50% tariff.

Century, whose top shareholder is London-listed Glencore with more than 40% of the company, has declined to comment on the tariff. It did, however, release a statement last week in which they welcomed it.

Last year, Century produced 690 000 metric tons aluminium.

Rio Tinto, the U.S.-based company that owns 50% of Matalco and produced 528,000 tonnes of recycled or secondary aluminum last year, declined to make any comments.

Aluminium recycling requires primary metals to maintain the properties of alloys that are used to manufacture industrial goods.

Unintentional Consequences

Alcoa, the largest aluminum producer in the world, announced that the tariffs would benefit its U.S.-based smelters, and its total active production capacity of 291,000 tons.

Alcoa produced 2.215 millions of tons of aluminium globally last year.

Constellium has the capacity to recycle 360,00 tons of aluminum annually in the United States. It said that it supported the original 25 percent tariff because it addressed unfair trading practices from non-market economies.

"However we are concerned that raising the tariff above this level could potentially have unintended effects - disrupting the supply chain of aluminum and affecting demand," the report added.

Analysts expect that higher aluminium prices will eventually affect demand.

SCRAMBLE FOR SCRAP

The U.S. imports large quantities of unwrought aluminum and alloys, more than 3.9 millions tons in the last year according to U.S. Government data.

According to the U.S. Geological Survey, in 2010, the U.S. produced over four million tons (mostly recycled material) of aluminum.

Sources in the industry expect U.S. imports of scrap aluminum to increase as recycling companies use high premiums to boost production.

Imports of scrap aluminum from the United States have already begun to increase. Data from Trade Data Monitor, an information provider, shows that U.S. imports of scrap aluminium rose by more than 30% in the first quarter this year compared to the same period last year.

The high Midwest premium will allow recycling companies to bid higher for scrap than other buyers in the United States because they can sell aluminum locally at a much higher price.

LME aluminum is currently trading at around $2,500 per ton. The duty-paid premium has fallen by more than half to $170 per ton in Europe since January, on the expectation that some global producers would divert primary metals to Europe to avoid U.S. Tariffs. Reporting by Pratima Dasai. (Editing by Veronica Brown, Mark Potter and Mark Potter.

(source: Reuters)