Analysis-Aluminium producers in the US win from Trump's tariffs

U.S. aluminum producers, particularly Century Aluminum and Matalco, are poised to benefit from President Trump's increase of import tariffs to 50%, driving the Midwest premium to a record $1,377 per ton, a nearly 190% surge since his re-election. While Alcoa also expects gains, concerns are rising that these elevated tariffs could inflate consumer costs, potentially weakening demand and disrupting the aluminum supply chain, as evidenced by Constellium's statement and a concurrent rise in U.S. scrap aluminum imports.

Analysis

The U.S. aluminum market is undergoing significant shifts following the presidential decision to increase import tariffs on the metal to 50% from 25%, effective June 4. This policy is anticipated to primarily benefit domestic primary aluminum producers like Century Aluminum (CENX), which produced 690,000 metric tons last year and welcomed the tariff, and top recycler Matalco, 50% owned by Rio Tinto (RIO), which produced 528,000 tons of recycled aluminum. Alcoa (AA), with 291,000 tons of active U.S. production capacity, also expects its U.S. smelters to gain. The financial impact is evident as the Midwest premium, a key component of U.S. aluminum pricing, surged nearly 190% since November to a record 62.5 U.S. cents a pound ($1,377 a metric ton), with consultancy Harbor Aluminum projecting a further rise to 70 cents a pound ($1,543 a ton) to fully absorb the 50% tariff. However, these higher domestic prices raise considerable concerns across the sector. Constellium (CSTM), with a U.S. recycling capacity of 360,000 tons, expressed apprehension that increasing tariffs beyond 25% could disrupt the aluminum supply chain and negatively impact demand. This concern is amplified by analysts' expectations that increased costs will be passed to consumers, potentially weakening overall demand. The U.S., which imported over 3.9 million tons of unwrought aluminum and alloys last year and produced over four million tons (mostly recycled), is seeing a resultant scramble for scrap aluminum, imports of which remain tariff-free and rose over 30% to 201,968 tons in the first quarter of this year compared to the same period in 2024. This trend is driven by recyclers capitalizing on high domestic premiums. Concurrently, the LME aluminum price hovers around $2,500 a ton, while the European duty-paid premium has fallen over 50% to $170 a ton since January, as global producers are expected to divert primary metal to Europe to avoid U.S. tariffs.

Key Decisions for Investors

• Investors in U.S. aluminum producers such as Century Aluminum (CENX) and Alcoa (AA), along with Matalco (via Rio Tinto), should anticipate enhanced revenue potential from the 50% import tariff and record Midwest premiums, but must closely monitor for signs of demand destruction or supply chain disruptions as highlighted by Constellium's (CSTM) concerns.
• Carefully track U.S. scrap aluminum import volumes, which surged by over 30% in Q1 year-over-year, and associated pricing, as this dynamic could significantly impact recycler margins and the domestic availability of primary metal essential for alloys.
• Evaluate the sustainability of elevated U.S. aluminum prices, considering analysts' projections that cost pass-throughs to consumers may eventually dampen demand; also note the potential for increased global supply outside the U.S., as evidenced by falling European premiums due to metal diversion.