Trump announced on Thursday March 1 that he would impose tariffs of 25% on steel imports and 10% on aluminium imports into the US for an indefinite period. Section 232 allows him to take such action when he believes that national security may be compromised by imports.
For much of the European market, the specifics of the tariff remain vague, however.
“Who knows what the effect of it is? There are so many details that we must know before we can understand it. I feel like we are swimming against the tide,” a trader in Europe said.
“I think it’s still early days,” a second trader said, adding that details about the types and origins of aluminium products that will be affected remain vague.
Some of the market is interpreting Trump’s announcement as a 10% blanket tariff on all aluminium imports, which would include P1020-grade materials and other downstream products.
In such a scenario, some expect the European physical market to remain stable because import flows would not be significantly affected and Europe would not become a more attractive destination by default. Given the aluminium supply deficit in the US, that country would continue to import but would simply have to pay more to cover the cost of the duty.
“The US was importing 57% of its needs [before Trump’s announcement] and it cannot build new [aluminium] smelters that quickly. US premiums are going to be strong; you are going see shipments there. The flows will not change,” the second trader said.
In the long term, however, pressure on European markets is expected to rise. If and when US aluminium production ramps up to the point where its domestic market is well supplied, global flows could divert toward Europe and Asia.
The resulting effects on the European market will hinge on whether Canada will be included among the countries of origin that will be subject to import duty.
“Are they going to let Canadian material [come into the US] tax-free? That decides where the metal will go,” a third trader in Europe told Metal Bulletin.
The EU-Canada Comprehensive Economic & Trade Agreement, signed in 2016, allows Canada-produced metal to avoid the EU’s 3% duty on aluminium ingots. That deal was expected to shift aluminium out of the US market, but the strength of the US Midwest premium versus the Rotterdam premium kept up the steady flow of metal from Canada into the US.
However, if Canadian metal became subject to a US import tax, sizable tonnages could make their way to Europe instead.
In Europe, premiums moved lower to $95-105 per tonne on Friday March 2 from $100-107 per tonne, mostly because of market participants caving into unfavorable spreads and liquidating material. The premium has been facing downward pressure from a persistent backwardation in the London Metal Exchange cash/three-month spread, but early on Friday the latter swung into contango for the first time since February 14.
Several participants added, the premium could be volatile moving forward.
The spread remains unfavorable to holders of metal. “You can’t even pay financing with that. Everything is losing money,” a fourth trader said.
Aluminium premiums appear to have responded to Trump’s statement. Multiple market participants confirmed that the P1020 premium was being quoted higher after the announcement, and Midwest premium futures on the Chicago Mercantile Exchange showed a stark boost. The July futures contract rose by 2.5 cents to 17 cents per lb, up from 14.5 cents per lb on February 28, CME Group figures show.
Still, not everyone was certain that premiums would remain stable, given the spread situation and the looming tariff.
“The fact that it’s a flat tax on everybody makes things intense - it increases the Midwest premium. For the rest [of the world], it’s more of a cool-down,” the fourth trader said.
“In the short term, the most vulnerable are [Rotterdam duty-unpaid] premiums,” a fifth trader said.
Another potential problem among the consequences for the European market of a blanket tariff under Section 232 is a trade war.
“It raises the risks of an all-out trade war, which could damp economic growth and weigh on the sector,” ANZ Research said about the tariff.
Following the news, European Aluminium called for the European Commission and EU member states to “protect the aluminium industry” because it believes that the measures threaten to destabilize global trade flows.
“European aluminium exports to the US, in view of both their quantity and characteristics, do not pose any threat to US national security,” Gerd Götz, director general of European Aluminium, said.
On the steel side, European steel association Eurofer has welcomed the EC’s pledge to enact “appropriate and swift measures.”
The tariffs will be felt all the way downstream, another market participant said. According to a sixth trader in Europe: “US citizens will have to suffer for [buying] Cokes and cars.”
The European aluminium market still faces many unknown influences following US President Donald Trump’s latest announcement on the imposition of trade tariffs under Section 232.