Canada’s exemption from 232 tariffs a boon to Canadian aluminum producers
Thursday, July 25, 2019
Companies like Rio Tinto and Alcoa are cashing in on the Canadian exemption from U.S. tariffs on imports of aluminum. However, costs for U.S. consumers have not been cut.
"Now that Canada is exempted from the 232 tariffs, we would anticipate an annual benefit of approximately $200 million from the 232 tariffs," said Alcoa chief financial officer William Oplinger at a briefing on July 17.
Rio Tinto declined to comment.
Other exempt countries include Argentina, Australia and Mexico which are estimated to account for nearly 10% of aluminum going to the United States.
Global aluminum demand is estimated at 67 million tonnes this year.
"The U.S. needs metal from Russia, the Middle East and India to satisfy local demand, the price is determined by the highest cost supplier," said CRU Group analyst Eoin Dinsmore. Highest cost suppliers are those who have to pay the tariff.
"About 70% of U.S. aluminum demand can be met without paying import duties, yet 100% is pegged to the duty payable," said Citi analyst Oliver Nugent, adding the bank's estimate for U.S. aluminum demand this year was 5.57 million tonnes.
"Canadian producers are making good margins on physical premiums. It's a negotiated market and up to consumers to push the premiums down. The surprising thing is that there isn't a two-tier structure. One tier for producers that pay duties and another for those that don't."
Aluminum is used to make cans and extrusions, which are solid, semi-hollow and hollow shapes for home appliances and auto makers. Higher costs are either passed through the supply chain or absorbed by end consumers.
"It was disappointing that premiums didn't come down," a source at an aluminum consumer in the United States said.
"Problem is, if you try to differentiate on where your aluminum comes from, it creates winners and losers, we should just lose the tariffs."