What do higher tariffs mean for aluminium and copper? Morgan Stanley weighs in

Analysts at Morgan Stanley project that President Trump's doubling of aluminum tariffs to 50% will increase aluminum prices and costs for U.S. consumers, potentially requiring premiums to rise to $0.68-$0.70 per pound to maintain metal flow into the U.S.; the U.S. Midwest duty-paid aluminum premium already spiked 54% to $0.58 per pound following the announcement. The tariffs may also impact U.S. spot aluminum purchases as consumers await policy changes, and markets are speculating that similar duties could be imposed on copper imports, though stockpiling may mitigate price impacts.

Analysis

President Trump's decision to double U.S. tariffs on aluminum imports to 50% is projected by Morgan Stanley analysts to significantly elevate domestic aluminum prices and increase costs for consumers. The U.S. Midwest duty-paid aluminum premium has already reacted sharply, surging 54% to $0.58 per pound, or $1,279 per metric ton, immediately following the announcement, marking a more than 160% increase year-to-date. Goldman Sachs analysis suggests this premium may need to climb further, to between $0.68 and $0.70 per pound, to fully absorb the impact of the heightened tariffs and ensure continued metal flow into the U.S. This policy shift could also lead to a reduction in U.S. spot aluminum purchases if buyers adopt a wait-and-see approach, anticipating potential policy reversals or exemptions. Furthermore, the increased tariffs are expected to influence global aluminum trade flows, potentially diverting excess metal to other regions and thereby depressing premiums outside the U.S., similar to how initial 25% tariffs led to increased aluminum flows to Europe and a subsequent slide in European premiums. The market also appears to be pricing in an increased probability of similar tariffs on copper imports, which are under investigation; however, Morgan Stanley suggests that recent stockpiling of copper in the U.S. might cushion the immediate price impact should such duties be implemented.

Key Decisions for Investors

• Investors in aluminum-consuming industries should prepare for sustained higher input costs and evaluate procurement strategies, considering the direct impact of the 50% tariff on U.S. physical premiums.
• Traders should monitor U.S. spot aluminum purchasing volumes closely, as a significant slowdown could signal consumer resistance to elevated prices or expectations of policy adjustments, thereby affecting short-term demand dynamics.
• Market participants should assess the risk of contagion to other industrial metals, particularly copper, where new tariffs could be imposed, while noting that existing U.S. stockpiles might mitigate the initial price shock.
• Consider the potential for shifts in global aluminum trade flows and regional premium differentials, as excess metal may be redirected away from the U.S., creating pricing pressures and opportunities in other markets.