US Aluminum Producers Still at China’s Mercy despite Tariffs

US aluminum producers

Aluminum producers like Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHYDY) see Chinese aluminum overcapacity as a major challenge. China’s aluminum overcapacity was also mentioned in this year’s G7 meeting, which will otherwise be remembered for the exchange of rather harsh words between the United States and Canada.

US Aluminum Producers Still at China’s Mercy despite Tariffs

Chinese exports

Chinese aluminum exports have been running strong this year despite China’s stated commitment of curtailing its aluminum overcapacity. Last month, China exported 519,000 tons of unwrought aluminum, which is only the third time that China’s aluminum exports have been higher than 500,000 metric tons. Furthermore, the country’s aluminum exports have been at more than 500,000 metric tons for two consecutive months now. In the first seven months of the year, Chinese aluminum exports were up 13.1% as compared to the corresponding period last year.

Aluminum prices

While President Trump’s tariffs have lifted US Midwest aluminum producers, aluminum prices like other base metal prices have sagged on concerns about the US-China trade war and concerns about China’s metal appetite. While US aluminum producers are benefiting from higher physical premiums in the United States, the benefit has been more than offset by lower aluminum prices.

Alcoa partially blamed Section 232 tariffs for lower guidance during its second-quarter earnings release and is now seeking tariff exemptions for 40,000 metric tons of aluminum it ships from Canada to the United States (SPY). According to Reuters, “Alcoa said no U.S. aluminum producer can meet its specification needs and quality requirements for rolling slabs used at its Warrick, Indiana plant to produce aluminum for can manufacturers.”

In the next and final article, we’ll look at what investors should make of China’s July copper import data.