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Did the Tariffs Dent Aluminum Market Sentiments?


Mar. 19 2018, Updated 3:15 p.m. ET

President Trump’s tariffs

As we noted previously, President Trump has imposed a global tariff of 10% on aluminum imports based on recommendations from the Department of Commerce’s Section 232 probe. The Department of Commerce intends to boost US aluminum production and the domestic aluminum industry’s capacity utilization rate. The US aluminum industry’s capacity utilization ratio was 43% last year, according to the Department of Commerce. Century Aluminum (CENX) welcomed the Section 232 tariffs. Century Aluminum plans to restart one of its plants.

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US aluminum production

US aluminum production and the capacity utilization rate fell over the last few years as companies idled plants in response to lower global aluminum prices. Aluminum prices are decided by a trading mechanism. So, lower global aluminum prices mean that US producers get less for their products.

Along with aluminum prices, aluminum producers like Rio Tinto (RIO), Aluminum Corporation of China (ACH), and Norsk Hydro (NHYDY) also receive a physical premium that buyers pay to get immediate aluminum delivery. While aluminum prices are decided by a trading mechanism, premiums are settled between end buyers and aluminum producers. Companies like Alcoa (AA) see physical premiums as a better indicator of aluminum markets.

Aluminum prices

LME (London Metals Exchange) aluminum made its 2018 high on February 19. The Department of Commerce’s Section 232 findings were released on February 16. Between February 19 and March 16, LME aluminum has fallen ~$200 per metric ton. The US Midwest aluminum premium has risen by the same quantum this year. While several factors, including a steep increase in Chinese aluminum exports, could be denting aluminum market sentiments, there appears to be an impact from the Section 232 tariffs. The fear of a global trade war had a negative impact on equity and metal prices.

Next, we’ll see what Century Aluminum said about President Trump’s tariffs.


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