Aluminium market’s reaction to first phase of US-China trade deal muted
The United States and China signed a phase-one trade agreement on Wednesday January 15, but the US aluminium market’s reaction was subdued due to the President Donald Trump administration’s failure to address the Section 232 tariffs.
“We congratulate President Trump and his administration on this important first step toward a more balanced trading relationship between the US and China. As the parties move to the next phase of negotiations, we strongly urge negotiators to focus on addressing the unfairly subsidized overcapacity that is hurting US aluminium producers - and impacting the global aluminium market,” the Aluminum Association said on January 15.
While the US will maintain tariffs on Chinese goods for now, Trump revealed during a joint US-China press conference announcing the signing of the agreement that he intends to eliminate tariffs [imposed outside the scope of Section 232] once phase two of the trade accord is completed.
But there was no mention of the actual Section 232 tariffs, which currently force importers to pay an extra 10% to source aluminium from most overseas suppliers. That point is key for US aluminium market participants.
US aluminium market participants were hesitant to rush to any conclusions on the potential market impact of the phase-one agreement alone.
“The big one of all of us is [Section] 232. I’m not sure that [the] Chinese [tariffs alone] will have much of an impact,” one trader source said.
John Mothersole, IHS Markit’s director of pricing and purchasing research, sees no direct benefit to the aluminium industry.
“We’re not talking about reducing the Section 232 tariffs. From what I can tell, the partial rollback in 301 tariffs on Chinese products won’t hit any aluminium product categories,” he said.
“It certainly won’t reduce the anti-dumping and countervailing duties recently placed on various Chinese imports,” Mothersole added.
These duties included Chinese aluminium wire and cable products.
A second trader was slightly optimistic that the positive development would support the general economy, and in turn US manufacturing and domestic aluminium demand.
But Mothersole told Fastmarkets that the agreement could quell some of the uncertainty that has been weighing on investments in the market since 2018, adding that he expects greater demand for aluminium this year.
“The uncertainty now seems to have dissipated a little bit, which had frozen investment decisions. Maybe those purchases will go forward now. When looking at global aluminium consumption, we note that 2019 was a very weak year. It’s hard to see that repeated in 2020. I would expect some sort of modest acceleration in consumption growth,” Mothersole said.
Fastmarkets’ aluminium P1020A premium, ddp Midwest US, was at 14.5-16 cents per lb on January 14, a range that has been maintained since December 6 and the lowest level recorded since late-February 2018.