By Bob Tita

Tariffs are driving a wedge through the $92 billion aluminum industry.

Aluminum buyers say President Trump's tariff pledges have already raised their costs and few suppliers in the U.S. -- where production has been declining for years -- can meet their needs. On the other side are U.S. aluminum producers, who say they have had to compete for years against foreign-made aluminum sold at artificially low prices.

Beverage cans, window frames, auto parts and other products with substantial aluminum content are set to become more expensive as domestic aluminum costs increase in response to the higher tariff, analysts said. Whether U.S. aluminum companies will expand U.S. production is less clear.

Trump this month announced that duties on imported aluminum would rise to 25% from 10% starting March 12, while expanding the range of aluminum products subject to tariffs. At the same time, Trump repealed exemptions and duty-free quotas that have given major U.S. trading partners a break on tariffs.

Those moves, alongside increasing steel duties first implemented in Trump's earlier presidential term, are part of his broader industrial policy to replace imports with more domestic manufacturing.

Detroit-based Tompkins Products makes parts for automotive transmissions, leaning on a handful of U.S. and European suppliers for the specialized aluminum alloy bars it needs. Director of Operations Tracy Skupien said added costs from the expanded tariffs could lead Tompkins to buy more from Arconic, its one U.S. supplier.

But prices for U.S.-made aluminum are rising as well. Skupien said giving more orders to one supplier could put Tompkins at risk for supply disruptions if Arconic runs into production problems.

"It's going to cost me a lot of money that I don't have," Skupien said.

American aluminum manufacturers say Trump's expanded tariffs will help them restore profits and support domestic production by keeping discounted foreign-made metal out of the market.

Imports accounted for nearly 60% of U.S. aluminum consumption in 2023, according to the Aluminum Association, the industry's trade group. Companies have complained that nearly three-quarters of the imports enter the U.S. duty-free, often at prices lower than those of U.S. suppliers.

"Now that there are no tariff exemptions, we have a fighting chance," said Steve Dillett, chief executive of Custom Aluminum Products. The Illinois-based company manufactures extrusions -- long, shaped pieces of aluminum used in window and door frames and dozens of other products.

Dillett said the U.S. extrusion industry's sales fell by 40% in the past five years under an onslaught of lower-priced imports from Mexico and other countries. Under Trump's expanded duties, imported extrusions and other derivative aluminum products would be subject to a tariff for the first time.

Trump's higher tariffs will be baked into a delivery charge attached to all aluminum transactions. The per-pound charge has nearly doubled since late November in anticipation of a higher tariff, according to S&P Global Commodity Insights' Platts.

Some market analysts are forecasting the delivery premium, recently 41.45 cents a pound, will eventually reach 50 cents a pound, or $1,100 a metric ton. Aluminum users have complained that paying a higher premium for U.S.-made aluminum amounts to a profit windfall for domestic suppliers.

U.S. aluminum makers' biggest obstacle to expanding production is the continued shrinkage of smelters producing the high-purity aluminum that is often mixed with other metals or used in complex or high-stress products.

Four smelters operate in the U.S., down from seven in 2020 and 23 in 2000. Last year U.S. production of aluminum from smelters, which is known as primary aluminum, fell to the lowest level since 1950.

Electricity costs to operate power-intensive smelters have been driving them out of business. Producing a ton of primary aluminum typically uses more electricity than a single household consumes in an entire year. Electricity costs in recent years have increased by as much as one-third, and electricity makes up 40% of the cost of operating a smelter.

That has helped shift demand to Canada, where smelters have access to low-cost power from hydroelectric generators. Canada is now the largest supplier of primary aluminum to the U.S., accounting for 75% of the total primary aluminum consumed by the U.S., according to the Aluminum Association.

The association said it supports the 25% duty, but urged Trump to exempt primary aluminum from Canada because it would take at least a decade to build new smelters and expand the power supply in the U.S.

"Let's make a deal with Canada until we can get that smelting capacity up and running," said Charles Johnson, the association's president.

Pittsburgh-based Alcoa, which produces primary aluminum in both the U.S. and Canada, warned Tuesday that the economic burden of the planned tariffs, including a separate duty on aluminum as a critical mineral, could jeopardize 100,000 U.S. jobs. CEO William Oplinger told an investor conference that tariffs would exacerbate the shortage of primary aluminum in the U.S.

Buyers and producers have squared off over tariffs before, including in 2018 when Trump administration tariffs drove up U.S. aluminum costs.

Brewer Molson Coors and others in the beverage industry at the time accused aluminum producers of price gouging through the delivery premium. They argued that beverage cans are mostly made from recycled domestic aluminum that shouldn't be subject to an import tariff.

In 2019, Trump exempted Canada and Mexico from the then-10% tariff, after the countries balked at renegotiating a free-trade agreement with the U.S. unless steel and aluminum duties were lifted. Other countries were also granted exemptions or duty-free quotas by Trump and former President Joe Biden.

For now, aluminum purchasers are girding for higher costs.

Colorado-based Reata Engineering & Machine Works manufactures aluminum parts for the medical, aerospace and defense industries. Grady Cope, the company's owner, said aluminum makes up about 20% of his product expenses, and most of his customers specify countries of origin for quality control, making it hard to shop around.

"I imagine that we'll start hearing about price increases from our suppliers," Cope said.

Write to Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

February 26, 2025 08:00 ET (13:00 GMT)

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