Section 232 tariffs
Last week, President Trump temporarily exempted some countries from the Section 232 tariffs. According to the Commerce Department, the United States imported ~6 million metric tons of aluminum in 2016. Canada accounted for roughly half of that total and was exempted from the duties when President Trump initially formalized the Section 232 tariffs. Rio Tinto (RIO) has operations in Canada. Norsk Hydro (NHYDY) also has a presence in Canada.
However, Canada (EWC) is the only country among the top five aluminum exporters to the United States that has been exempt from the tariffs. As we noted in the previous part of this series, Russia and China—the second- and fourth-largest aluminum exporters to the United States in 2016—are still covered under the Section 232 tariffs. So is the United Arab Emirates, which was the third-largest aluminum exporter to the United States in 2016.
Now, with the section 232 tariffs, the US Commerce Department intended to boost US aluminum production and boost the domestic industry’s capacity utilization rate, which was a dismal 48% in 2016. However, unlike steel, where the installed capacity in the United States is almost equal to annual demand, the country’s aluminum capacity is woefully short of the domestic demand. According to the Commerce Department, US aluminum smelting capacity was 1.8 million metric tons last year while the country’s aluminum production was only 785,000 metric tons between January and November.
These facts mean that there’s only about 1 million metric tons of curtailed capacity in the United States that can theoretically come online after the Section 232 tariffs. So, even with the plant restarts—including those announced by Century Aluminum (CENX)—the United States would still need to import a large part of its aluminum requirements. One of Alcoa’s (AA) smelters is also expected to come online later this year. The restart was announced last year.
In the next part of this series, we’ll see what the Section 232 tariffs could mean for US physical aluminum premiums.