By Kirk Maltais

The tariffs targeting aluminum imports into the U.S. have buyers scrambling to procure the metal before the levies are expected to kick in and make imports more expensive.

Aluminum buyers--which include manufacturers of products like automobiles, beverage cans and home appliances--are attempting to stock up on primary aluminum before the Trump administration raises the 10% tariff placed on the metal to 25% starting next month.

The U.S. is a deficit market for aluminum, meaning that demand for the metal is higher than the amount that is produced by domestic smelters. According to data from the Aluminum Association, imported aluminum accounts for nearly 60% of the aluminum used in the U.S., while the amount of aluminum produced in the U.S. continues to diminish.

"The U.S. is heavily dependent on imports of primary aluminum to satisfy its demand needs from key sectors," said Karen Norton, principal analyst of metals and mining for S&P Global Commodity Insights.

U.S. aluminum smelters produced just below 700,000 metric tons of aluminum in 2024, Norton said. That is down nearly 14% from the year prior, and it is enough to cover about 15% of American demand for the metal, which comes from extruders and rollers that create the kind of parts that then find their way into larger products like cars.

But for aluminum, it isn't the underlying price for the metal that is reflecting increased anxiety around its availability, but instead the surcharge buyers have to pay to have aluminum transported to their facilities from the ports that they arrive from.

This surcharge--known as the 'Midwest premium'--has quickly risen in the wake of the tariff announcement, with Platts, a part of S&P Global Commodity Insights, pegging its assessment at 38.55 cents a pound earlier this week. The firm's assessment has climbed 65% from the start of the year, and it has surged nearly 30% since the White House confirmed new metal tariffs.

By comparison, base prices for aluminum trading on the London Metal Exchange have only inched up since the start of the year, with the three-month forward contract climbing 7% since Jan. 1, to $2,727.50 a metric ton on Thursday.

The Midwest premium is periodically a topic of controversy within the U.S. aluminum industry, but in essence it is a delivery fee for aluminum shipped within the U.S.

"It's like you're ordering a McDonald's burger from Uber," explains Andy Farida, a research analyst with Fastmarkets, who also performs an assessment of the premium. "The burger is like the aluminum, and the Midwest premium is like the delivery fee that you pay Uber."

The Midwest premium is a basic premium attached to sales of aluminum across the U.S. Other regions of the world have their own premiums.

Aluminum buyers can pass a lot of this additional cost to consumers, said Matthew Abrams, a senior analyst with CRU Group. While a higher tariff is expected to limit the amount of competing extrusions or can sheet that arrive on U.S. shores, higher consumer prices may then pressure demand, leaving downstream users like extruders and rolling mills stuck in an unprofitable situation.

Canada supplies roughly 60% to 70% of the imports that come into the U.S. market. Canadian suppliers like Rio Tinto produce high quality aluminum that is typically sold to stateside buyers.

To get aluminum of a similar quality, buyers may need to buy from Rio Tinto's Australian smelters, and premiums will need to be higher to make the U.S. a worthwhile place for those Australian smelters to sell to, Farida said.

In an interview with The Wall Street Journal, Rio Tinto Chief Executive Jakob Stausholm said the company has contingency plans in order if U.S. tariffs come into effect, which include rerouting Canadian aluminum that would typically go to American buyers to Europe, while American buyers look elsewhere to fill their demand, such as China or the Middle East.

Analysts say the quality of metal produced in Middle Eastern smelters, such as the smelter in Ras Al Khair, Saudi Arabia, that is operated as a partnership between Saudi producer Ma'aden and Alcoa, is comparable with that of Canadian producers, while metal from elsewhere is often seen as lower quality and worse for the environment, as many smelters still rely on electricity produced from coal-fired plants.

Meanwhile, the prospect of U.S. companies significantly increasing their aluminum production in reaction to tariffs is low.

"Tariffs have not effectively increased U.S. aluminium production, as despite the premium doubling in 2018 after the previous Trump administration introduced tariffs, production remains below 2017 levels," Fitch Ratings said in a note Wednesday.

Write to Kirk Maltais at kirk.maltais@wsj.com

(END) Dow Jones Newswires

February 21, 2025 14:14 ET (19:14 GMT)

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