Aluminium prices surge after release of US Commerce Department recommendations on imports

The US aluminium industry is grappling with the US Commerce Department’s recommendations - confirmed by Secretary Wilbur Ross - for President Donald Trump on the Section 232 probe, with that uncertainty translating to jumps in prices and premiums.

“Everything has lit up,” one aluminium supplier quipped. “I’m getting bombarded by emails.”

American Metal Market has learned that commodity broker Marex Spectron pushed its assessment of the US Midwest aluminium premium to 14 cents per lb, up from a previous point of 12.75 cents per lb, after Commerce released its recommendations on Friday February 16.

American Metal Market’s assessment of the P1020 premium has been on the rise since before Ross delivered his recommendations to the White House last month. The latest assessment, at 13-13.5 cents per lb, marks an upswing of more than 40% since the start of the year.

And CME Group’s Midwest aluminium premium futures have skyrocketed since the announcement, with the contract for April climbing to 15 cents per lb on February 16 from 13 cents per lb on Thursday February 15.

Stocks of aluminium companies on the New York Stock Exchange jumped following Commerce’s announcement. As of Friday afternoon, stock prices for US producer Century Aluminum Co had gained 10.4% from the previous day’s close.

Meanwhile, the London Metal Exchange’s daily cash price for aluminium jumped by $25.50 on Friday to close at $2,189.50 per tonne (99.3 cents per lb), up 1.2% from $2,164 per tonne (98.1 cents per lb) on Thursday.

The three main recommendations made by Commerce to the president concerning aluminium ingots and “a wide variety of aluminum products” include:

  1. Levying a tariff of at least 7.7% on all aluminium imports from all countries;
  2. Levying a 23.6% tariff on imports from selected countries, with a quota on the rest; and
  3. Enforcing a quota on all aluminium-exporting countries without levying a tariff

More answers, more questions
The open-ended nature of these recommendations, which Ross confirmed during a press conference Friday, reportedly was by design - and is causing ripples of uncertainty in the aluminium industry.

“There’s still as many questions as there were before,” the supplier said, citing concerns as to what aluminium “products” these potential actions could affect.

“I think the market expected less,” one analyst said. “I think [the recommendations are] very aggressive. I didn’t think they were going to be this aggressive.”

Ross also confirmed during the press conference that Trump would have until April 19 to decide on which measure, if any, he will elect to enact. The president can also choose to implement remedies not included in Commerce’s recommendation, and can opt to cancel the measures at any time once enacted.

Exporters that would be subject to the 23.6% tariff include China, Hong Kong, Russia, Venezuela and Vietnam. All other countries would be limited to a quota of 100% of their total aluminium exports to the United States in 2017.

Under the third option, all countries would be subject to a quota of 86.7% of their total aluminium exports to the US in 2017.

According to Ross, the open-ended nature of Commerce’s recommendations means to tackle problems of transshipment, which has been a major issue in the aluminium industry.

“Serial offenders can evade [anti-dumping and countervailing duty] measures… that’s why the proposed [232] measures need to affect aluminum shipments from all sources, to some degree,” Ross said.

Excluding Canadian material, US imports of general unwrought aluminium totaled 2.42 million tonnes in 2017 - up 23.8% from 2016 and 108.2% higher than 2015 volumes. According to Commerce, imports have risen to account for 90% of US demand for primary aluminium, up from 66% in 2012.

Despite the willingness to implement measures affecting a host of companies, the focus still appears to be Chinese aluminium.

“My quick glance through the report suggests that… China is a target,” John Mothersole, director of research, pricing and purchasing service at London-based IHS Markit, told American Metal Market February 16. “My surprise is that remedies may be placed across a broad range of product classifications... I had thought that they might be focused on flat products and/or primary aluminum.”

Some participants optimistic

Despite the lingering questions among market participants, some who spoke to American Metal Market were supportive of what they heard.

“To me, it sounds like a reasonable approach,” a second aluminium supplier said. “We’re not supposed to be a dumping ground.”

Quotas or a combination of quotas and tariffs on select nations appear to be the most likely options for the US to implement, Cowen & Co analysts said in a February 16 research note. However, for producers, any of the three options could be beneficial.

“The remedies seem to have a goal of restarting a good block of idle primary capacity,” Mothersole said. “This is interesting, since my perception is that most of this capacity is ‘vintage’ and/or just plain obsolete. But if you are going to make the case that the industry needs protection on national security grounds, you need to maintain a foundation of primary capacity.”

Ross made the same case during the press conference: “National security is a broad and encompassing topic… it’s not just defense needs.”

According to Commerce, the goal of the measures is to bring US aluminium production up to 80% of capacity, “a level that would provide the industry with long-term viability.” The US market is currently at 48% capacity utilization.

“People with capacity to restart operations will [do so]. People on the bubble… can be shoved off of the fence and go ahead and do it,” the second supplier commented.

Some companies have been reluctant to restart smelting operations - such as Arg International’s New Madrid, Missouri, facility - due to uncompetitive electricity costs offsetting the benefit of higher aluminium prices on the LME.

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