Aluminum prices have seen volatile action so far this year. The lightweight metal started the year on a positive note but has traded largely sideways. President Trump fired the first major salvo of the year by imposing a 10.0% tariff on aluminum and a 25.0% tariff on steel imports.
Prior to the imposition of these tariffs, President Trump had also imposed tariffs on imports of solar panels and washing machines. In January 2018, Jack Ma’s Ant Financial (BABA) also failed to obtain the required clearances to acquire US-based MoneyGram.
US-China trade war
The Section 232 tariffs and the subsequent escalation in the US-China trade war had a negative impact on the broader markets. The SPDR Dow Jones Industrial Average ETF (DIA) has pared its 2018 gains and is trading with a year-to-date loss of ~1.1% based on its April 13 closing price.
As the trade war escalated between the United States and China, aluminum and industrial metals came under pressure. US aluminum producers also saw selling pressure amid falling aluminum prices.
However, President Trump has imposed sanctions on Russian aluminum producer RUSAL. Aluminum prices rose sharply after the imposition of sanctions on RUSAL, which accounts for ~6.0% of global aluminum production.
Aluminum producers such as Alcoa (AA), Norsk Hydro (NHYDY), and Century Aluminum (CENX) rallied briskly despite the sagging broader markets. After the Section 232 tariffs, aluminum prices have fallen and US aluminum premiums have spiked.
While rising aluminum prices could benefit aluminum producers, the downstream aluminum industry’s profitability could be squeezed. We’ll discuss this topic in the next article.
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