US companies will seek more aluminum in the Middle East and India, and copper in Chile and Peru, in an attempt to circumvent the broad tariffs imposed by US 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 provided many details, but are scheduled to take effect on Tuesday and have shaken markets.
US 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 US imported 5.46 million metric tons of aluminum products in 2023, according to data from the US Department of Commerce. 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 US to other regions, so for the US to incentivize aluminum from other regions, it will have to pay a little more,” said analyst Glyn Lawcock of Sydney-based investment bank Barrenjoey. This will be reflected in physical premiums, which include costs such as handling and shipping, and are paid in addition to exchange prices to receive delivery of the physical metal.
The imposition of tariffs represents a “significant upside risk to the US Midwest premium this year,” ING analysts wrote in a note.
Primary aluminum prices in the US are based on the London Metal Exchange benchmark plus the Midwest premium, which rose to 2.95 US cents per pound or $650 per 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. William Oplinger of Alcoa said in an earnings conference call last month that Alcoa could redirect its Canadian material to Europe and that he expected more metal from the Middle East and possibly Indian metal to enter the US 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.”
A lawyer said he would advise clients to be cautious in case the tariffs are withdrawn and to prepare to sell in markets beyond the US in case Trump extends the tariffs to other jurisdictions.
In other metals, the redirection of trade flows could soften the impact of tariffs, with increased US 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 US domestic silver consumption and about 10% of US copper consumption, equivalent to about 147,000 metric tons of copper, it said.
“This announcement also increases the likelihood of further tariff measures... while reducing expectations of exemptions for US free trade partners,” Citi analysts said, citing the potential for a universal tariff on US imports of specific metals such as copper, aluminum, or steel.
Melanie Burton, Eric Onstad, and Pratima Desai, Mining.com