Aluminum Prices and Scrap Affected by Market Uncertainties

Tariffs. Trade wars. Consumption shifts.

All raise questions about the long-term direction of aluminum prices.

At $2,011 per ton, the London Metal Exchange price for aluminum was 10.8 percent less at the end of September than it was at the start of January. It had been as low as $1,966 per ton on June 4 and as high as $2,597.50 per ton on April 19.

Uncertainty has mounted as tariffs have been imposed, trade wars have arisen and manufacturers have shifted from primary aluminum to scrap.

North American Tariffs

Most recently, negotiators did not remove the Section 232 tariffs that the U.S. has levied on aluminum from Canada and Mexico when agreeing to terms for the United

States-Mexico-Canada Agreement (USMCA) on Sept. 30. USMCA will replace the North American Free Trade Agreement (NAFTA), pending approval by legislators in all three countries within 60 days.

The Aluminum Association was disappointed that there was no 232 tariffs resolution in USMCA and that the tariffs on imports from Canada and Mexico remain in effect.

Creating barriers within the North American supply chain threatens U.S. growth and investment, association officials say. “Fully 97 percent of domestic aluminum industry jobs are in mid-and-downstream production and processing,” Aluminum Association president and CEO Heidi Brock stated in a release.

“By artificially raising input prices and constraining metal supply, tariffs and quotas risk harming demand, growth and investment in the United States. We will continue to review the specifics of the agreement and work towards tariff- and quota-free trade of aluminum with our North American trading partners.”  

The “232 tariffs” were named for Section 232 of the Trade Expansion Act of 1962, which lets the U.S. president restrict imports for national security. President Donald Trump used Section 232 to impose aluminum and steel tariffs earlier this year. Canada has since countered with tariffs of its own.

“Eighty-four percent of aluminum produced in Canada, or 2.5 million metric tons, is exported to the U.S. each year, meaning the 10 percent tariff imposed by the Trump administration poses a significant threat to the Canadian industry,” according to a Bloomberg article on how with NAFTA renewed focus shifts to aluminum and steel tariffs.

Officials from Canada and Mexico will push to remove the tariffs before the USMCA agreement is signed, Bloomberg reported, and the U.S. seems willing to negotiate.

U.S.-China Trade War

Aluminum also has been caught in the trade war between the U.S. and China, according to an ALCircle article on how China’s revised 50 percent tariff on U.S. aluminum scrap to continues to hit the US scrap industry.

“The penalties are China’s latest blow to the U.S. recycling sector, after Beijing hit aluminum scrap with huge retaliatory tariffs in April as part of the trade dispute. Aluminum scrap grouped as UBC and non-UBC for pricing purposes —has been particularly affected by ongoing trade wars and sanctions,” ALCircle reported.

U.S. scrap exports to China decreased 24 percent to a total of $2.2 billion in the first six months of 2018, according to ALCircle. That was even before China increased the total tariff on aluminum exports from the U.S. from 25 percent to 50 percent on Aug. 23.

China also has tightened quality standards for imported materials to protect its environment. In seeking alternative buyers outside of China, the U.S. has become the second-largest exporter of scrap aluminum to Thailand, S&P Global Platts reported.

Changes in Consumption

Scrap aluminum is being used more in the U.S. as well.

“Our aluminum industry historically has been primary-driven. That has shifted. In the U.S., we’re [now] a scrap-based industry,” John Weritz, vice president of standards and technology for The Aluminum Association said while speaking at a recent event held by the Institute of Scrap Recycling Industries (ISRI), according to a WasteDive article about how China and tariffs are forcing market changes.

WasteDive reported: “As such, groups like The Aluminum Association and ISRI seek solutions to questions such as, ‘How do we find new applications for that scrap? How do we maintain the value of that scrap?, said Weritz. Answers to those questions gain extra significance and urgency during times of market difficulty and uncertainty.”

Uncertainty will linger at least until issues like tariffs, trade wars and consumption changes continue. All probably will last a while longer.

Photo Courtesy of The International Aluminum Association