US Import Tariff Hike to Have Limited Impact on Primary Aluminium Industry

The imposition of higher import tariff on aluminium in the US is expected to have a limited impact on the global primary aluminium industry in the near term, feels Indian rating agency ICRA. The US government has recently imposed a 10 per cent tariff on aluminium imported from all countries except Canada and Mexico. The move has created  furors all over the world.

However, ICRA, in its latest report said that this imposition of the recommended tariff on import of aluminium products into the US would not have any major impact on the current dynamics of the global aluminium industry. ICRA has attributed this to the fact that the global market, at present, is in a deficit, following key regulatory steps taken by the Chinese government to curb production from its polluting and “illegal” aluminium smelters. Therefore, countries other than the US, can absorb the aluminium metal, which is currently being exported from the countries that are eventually going to be impacted by the tariff. Interestingly, the expectation, does not consider the impact of retaliatory trade measure, if any, that may be taken by affected countries against the US.

Consider the Aluminium Association’s statistics (in the Section 232 investigation report). It suggests that the US was a net importer of nearly 3.96 MMT of primary aluminium in CY2016. Out of this, nearly 2.30 MMT was imported from Canada, and the balance 1.66 MMT originated from countries like Russia, Qatar, the United Arab Emirates and Argentina, on which the revised tariffs would be applicable. However, if one goes by ICRA’s observations, this can be absorbed in rest of the world, going forward, thanks to an anticipated deficit in the primary aluminium market in CY2018.

Here’s what Jayanta Roy, senior vice president, and group head, corporate sector ratings ICRA, said. “The production cutbacks in China has already resulted in a shortfall of 1.4 MMT of aluminium in the world market in CY2017, which will possibly widen further to over 2.5 MMT in calendar year 2018. And as a result of this, the trade restrictions would only change the world wide aluminium material supply chain. This is because there are markets across the world, which can absorb the excess metal if there is any cut down in import in the US,” said Roy.

As of now, there is 1 MMT of idle aluminium capacities in the US belonging to Alcoa Inc, Century Aluminium Co and ARG International AG. Even if these smelters succeed in resuming operations and achieving 100 per cent utilization rate within a short period of time, consumers in the US, including downstream aluminium product manufacturers, would still have to depend on imported primary metal to an extent, since the incremental supply would fall short of the current level of imports from affected countries. Subsequent to the announcement of the higher tariffs by the US government, aluminium premiums have risen sharply by nearly 21 per cent in the US and by almost 10 per cent in Asia. This clearly reflects that the expectation of the commodity market that the above move is unlikely to have any significantly adverse impact on the global aluminium industry.