As noted in the previous article, a flat tariff on aluminum imports might not have a major impact on US aluminum production and might not boost jobs in the US aluminum smelting industry.
However, it could positively impact earnings of companies like Century Aluminum (CENX), as US aluminum premiums, which are higher than in other regions, might readjust themselves in line with the proposed tariffs.
The second option put forward by the Commerce Department includes a tariff of 23.6% on aluminum imports from countries like China, Russia, and Vietnam, while other countries would have their quota limited at their 2017 aluminum exports to the United States. The final option calls for a quota of 87% on all countries based on their 2017 aluminum exports to the US.
The quotas, if imposed, could have an impact on US aluminum production, as they would limit aluminum volumes in the US market at a time when demand is expected to rise as compared with last year.
That said, whether US aluminum smelters can immediately meet the increase in demand still remains to be seen. It can take a significant amount of time to restart a smelter. For example, the Warrick partial restart that Alcoa (AA) announced last year isn’t expected to be ready until 2Q18.
Power supply issues
Furthermore, some US plants like Century Aluminum-owned Mt. Holly still need to sort out their power supply arrangements to run the plant at full capacity. Among other producers, Alcoa’s ABI smelter in Canada is facing labor issues. Canada is the largest aluminum exporter to the US. Rio Tinto (RIO) also has plants in Canada that serve the US market.
Simply put, a quota regime, if immediately implemented, could lead to supply-side disruption in US markets in the short term, which could impact US aluminum buyers, including automotive companies like Ford Motor (F) and Tesla (TSLA). However, in the long term, quotas could mean higher aluminum production and hopefully more manufacturing jobs in the US aluminum smelting sector.
In the next and final article of this series, we’ll see how US tariffs could leave the core issue facing global aluminum industry untouched.