Lifting of tariffs on Canada boosts earning for Canadian aluminum producers, U.S. consumers feel the price pinch

Analysts review that Canada’s exemption from U.S. tariffs on imports of aluminium has boosted earnings for companies such as Rio Tinto and Alcoa at the expense of U.S. consumers.

Despite the lifting of tariffs on Canada in May, U.S. consumers are paying the physical market premium of around US$400 a tonne above the benchmark LME price of around US$1,810 a tonne. Analysts say the tariff component paid by non-exempt producers stand at US$192 of the premium amount.

“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. aluminium demand this year was 5.57 million tonnes.

Aluminium producers like Alcoa and Rio Tinto with facilities in Canada are making a good profit on higher physical premiums. It does the take into account the interests of the consumers. A large section of aluminium consumers in the U.S. are disappointed that premiums did not come down after the lifting of tariffs.

Rio Tinto produced 1.88 million tonnes of aluminium in Canada last year, while Alcoa’s North American operations have a capacity of 1.67 million tonnes.

“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 on July 17.

Canada accounts for about 51% of aluminium import (Crude metal and alloy) by the U.S.  Other exempt countries include Argentina, Australia and Mexico which are estimated to export about 10% of aluminium to the United States.

“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.

He said that U.S. Midwest premiums will always be higher than Rotterdam port because of higher inland freight, which costs about US$75/t. In case of the U.S. it is Rio Tinto and Alcoa that determine the market price and there is no separate benchmark for tariffed and non-tariffed producers.