Tough aluminium tariff likely from Section 232, analysts say

The United States is expected to impose a strong tariff on aluminium imports as a result of the Commerce Department’s report on its Section 232 investigation, analysts said this week.

“We think a trade tariff on aluminium is more likely than not to be imposed,” analysts at Goldman Sachs Commodities Research said in a research note on Wednesday January 24, citing statstiics showing that US aluminium production fell by 60% over the past five years while import reliance rose to 52% from 11% - figures that US President Donald Trump's administration would likely reference when making its decision.

The prospects of such a tariff is making analysts bullish on the outlook for aluminium prices this year, with Bank of America Merrill Lynch Research setting a $2,500-per-tonne ($1.13-per-lb) mid-year target for London Metal Exchange aluminium prices.

“Many of the unilateral measures discussed would almost certainly increase premia and thus purchasing cost for US buyers,” the bank said.

“We are constructive on aluminium over one-month and three-month views,” Metal Bulletin Research analyst Boris Mikanikrezai agreed in a note on January 25, forecasting that further upward pressure will be seen on the LME over the next couple of weeks. “Real-time micro indicators of the LME aluminium market are bright and the physical market strengthens, thereby underpinning our positive aluminium view.”

US Commerce Secretary Wilbur Ross confirmed delivery of the finished Section 232 report to Trump earlier this week, solidifying the prospect of aluminium prices rising considerably in 2018. Market participants believe that Trump’s Section 232 decision will focus on China in lieu of other countries, they told American Metal Market on January 22, which would not make a large impact on aluminium supply in the US since China only ships a minimal amount of primary aluminium to the country.

But with Trump’s recent decision to place tariffs on imports of solar panels and washing machines, both the steel and aluminium industries view this as an indication that Section 232 tariffs are a strong likelihood. Trump has 90 days from his receipt of the report to determine what remedies, if any, to levy.

Even with these indicators, Goldman Sachs expressed caution in its research note. "To be clear, the situation is fluid and there is still great uncertainty associated with the tariff rate, the targeted countries and potential retaliations from America’s trading partners," it said. "The latest tariffs on solar panels and washing machines turned out to be less severe than most companies had been expecting. This points to the direction that the final decision on the aluminium Section 232 may also be less dramatic than the 'America First' rhetoric suggests."

While downstream aluminium market participants handily outnumber their upstream counterparts, aluminium producer Century Aluminum Co has been particularly outspoken in its support of strong tariffs on primary metal under Section 232 remedies.

Century implored Trump on January 10 to “levy broad comprehensive tariffs to address systematic global overcapacity... This is not only the best way to safeguard US national security, it is also the best way to motivate action towards the long-term goal of bringing the global market back into balance and long-term sustainability.”

Aluminium prices on the LME have topped $1 per lb since the announcement that Trump received the Section 232 report. The three-month contract closed the official session at $2,240.50 per tonne ($1.02 per lb) on Thursday, with the daily cash price only slightly lower at $2,237.50 per tonne.

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