Aluminium: Midwest premium to stay elevated – ING

ING Commodities Strategist Ewa Manthey examines US aluminium policy and market dynamics, revealing that the amended Section 232 tariffs aim to stimulate domestic smelting but will not swiftly resolve the supply deficit. With US primary aluminium output on a long-term downward trajectory and new capacity years away, the US continues to rely on imports, maintaining elevated Midwest premiums.

The Trump administration modified its Section 232 aluminium tariffs to encourage investment in domestic smelting, allowing qualifying companies to import materials at a 25% tariff instead of the standard 50% rate if they meet specific investment milestones. Despite years of tariff protection, US primary aluminium output has dwindled, with the nation now operating only four smelters, compared to over 20 at the turn of the century, making the US highly dependent on imported metal, primarily from Canada and the Middle East.

Constructing new smelting capacity is a lengthy and costly process, requiring substantial capital investments, long-term power contracts, environmental approvals, and years of construction before new metal can enter the market. The US Midwest premium is expected to remain well-supported, as the new tariff program may enhance the long-term prospects for domestic production but is unlikely to significantly reduce import dependence or procurement costs in the coming years.

Consequently, the program should be viewed as a long-term industrial policy rather than a short-term resolution to the country's supply shortage.