Regional aluminium demand should be supported by USMCA

The House of Democrats in the USA on 10^th December’19 announced their support on an amended version of the USMCA, an agreement that was signed on November’18 by all three countries – USA, Mexico, and Canada. The amended agreement which involves changes made to labour and environmental standards and enforcement thereof was swiftly signed by Mexico, but it must now pass through US Congress and Canada’s Parliament for approval.

The US Aluminium Association rapidly endorsed the new USMCA but stated that “strong import monitoring and trade enforcement are vital to effective USMCA implementation.” The major concern is the tremendous increase in Chinese aluminium sheet and plate exports to Mexico, which is standing up at 94% YTD October’19 in comparison to the same period in 2018, and risen more than 220% compared to 2017. 

It has been a major concern among the US producers is the transhipment of aluminium products from China through Mexico and then entering the USA. However, it has been seen that this is not happening in the form of unwrought aluminium and semis, where US imports from Mexico have declined hugely in recent years. The larger and more noticeable concern is within automotive components and finished vehicles, where Mexico stands as a major exporter to the USA.  While comparing USMCA to the existing NAFTA, there are some noteworthy changes and new requirements as it links to automotive rules of origin.

In addition to the vehicle and parts specific content requirements, USMCA also includes a new requirement that auto OEM needs to source 70% of their aluminium and steel from North America in certification on an annual basis. The big point of concern rose by the US and Canada is the absence of a “melted and poured” requirement for aluminium, which was a last-minute addition for the steel industry. The aluminium industry officials still fear that Mexico will become “a back door for China to push aluminium into the USA.” It is also important to note that the “melted and poured” requirement was not a part of the existing NAFTA and will only enter into force post seven years from the USMCA implementation date. Nevertheless, the requirement of 70% aluminium includes direct purchases, purchasing through service centres and purchasing contracted through a supplier. This requirement is applied on a fleet-wide, company/account basis for the auto OEM, and pertains specifically to purchases of aluminium and aluminium products.