U.S. companies will seek more aluminum in the Middle East and India, and copper in Chile and Peru, in a bid to circumvent sweeping tariffs imposed by U.S. President Donald Trump, according to industry sources.
Trump's orders to impose additional tariffs of 25% on imports from Mexico and most goods from Canada, as well as 10% on goods from China, have not given many details, but are scheduled to go into effect on Tuesday and have rattled markets.
U.S. users rely on Canadian aluminum producers, such as Alcoa and Rio Tinto, for more than half of their imported needs and will seek alternative supplies, analysts said.
Important to the transportation, packaging and construction sectors, the United States imported 5.46 million metric tons of aluminum products in 2023, U.S. Commerce Department data show. Canada accounted for 3.08 million tons, or 56% of that amount, the data showed.
"Canada will divert some of the aluminum going from the U.S. to other regions, so for the U.S. to incentivize aluminum from other regions, it will have to pay a bit more," said analyst Glyn Lawcock of Sydney investment bank Barrenjoey. This will be reflected in physical premiums, which include costs such as handling and shipping, and which are paid in addition to exchange prices to take delivery of the physical metal.
The imposition of tariffs represents a "significant upside risk to the U.S. Midwest premium this year," ING analysts wrote in a note.
U.S. primary aluminum prices are based on the London Metal Exchange benchmark plus the Midwest premium, which rose to 2.95 U.S. cents a pound or $650 a metric ton on Friday. That reflects an increase of more than 10% since the beginning of the year and is the highest since July 2022.
Rio Tinto declined to comment. Alcoa's William Oplinger said on an earnings conference call last month that Alcoa could redirect its Canadian material to Europe and that he expected more Middle Eastern metal and possibly Indian metal to enter the U.S. market.
The United Arab Emirates and Bahrain are major aluminum producers.
Sources at two aluminum producers said they were waiting and monitoring Trump's announcements, with one adding that they had "no intention of changing yet."
One lawyer said he would advise clients to be cautious in the event the tariffs are withdrawn and prepare to sell in markets beyond the U.S., should Trump extend tariffs to other jurisdictions.
In other metals, the redirection of trade flows could soften the impact of tariffs, with higher U.S. imports from key alternative sources, including Peru and Chile for copper and silver, and Switzerland for gold, Citi analysts wrote in a note.
Together, Canada and Mexico account for about half of U.S. domestic silver consumption and about 10% of U.S. copper consumption, equivalent to about 147,000 metric tons of copper, he said.
"This announcement also increases the likelihood of further tariff measures...while reducing expectations of exemptions for U.S. free trade partners," Citi analysts said, citing the potential for a universal tariff on U.S. imports on specific metals such as copper, aluminum or steel.
Melanie Burton, Eric Onstad and Pratima Desai, Mining.com.