A week of underwhelming developments

Trumps’ trade deal with the U.K.

The Administration was eager to announce its first major trade deal on Thursday May 8. Unfortunately, the media probably gave more airtime to the news that Robert Prevost was the first American elected Pope in the Roman Catholic Church. Timing is everything…. but still the deal had important symbolism.

It was critical that the Trump Administration delivered a trade deal with a major trading partner, as over a month has lapsed since “Liberation Day”. Back and forth statements about talks with the Chinese (some fabricated it turned out) have not produced tangible progress. Discussions with our largest trading partners, Canada and Mexico have not yielded major results. Mr. Trump’s meetings with Mr. Carney this week were cordial, but there was nothing substantive concluded. In fact, Mr. Trump continues to say we “don’t need Canada’s aluminum or lumber”. Carney’s message back was succinct, “Canada will never be for sale”. This rhetoric does not sound like friends and neighbors ready to deal.

Discussions with Mexico continue, with some lessening of tariffs on the critical auto parts supply chain, but still no major deal.

At the same time, mega-retailers and others following cross-Pacific trade flows say the day of reckoning is coming when store shelves could empty, and prices must reflect the steep Chinese tariffs announced. That could be at the end of June or July. The Administration’s response has been that girls don’t need as many dolls. Seriously? How about focusing on the critical products we cannot replace in the short run, such as pharmaceuticals, machine tools and of course rare earths. It is not debatable that we should not have the degree of dependency on China that we do for these products, but we need time to replace China and frankly, there has been little done to effectively change things. Announcements about potential investment in the U.S. to build domestic capacity are one thing, putting shovels in the ground are another. Details such as finding the skilled labor to go into these factories, providing competitive energy and developing the raw material supply chains are still very much up in the air.

The U.K. deal in respect to autos and aluminum

The deal as announced keeps the 10% import tariff on U.K goods coming in. So that’s a cost increase to the U.S. consumer. It was also touted that the U.K, agreed to an annual quota of 100,000 vehicles at the 10% tariff rate, rising to 25% thereafter. In 2024, the U.K. exported approximately 106,000 vehicles to the U.S. So, this quota was not onerous for them to agree to this. Again, symbolism

The U.S. agree to lift the Section 232 tariffs on steel and aluminum. I will leave it to my colleagues at Steel Market Update (SMU) to comment on the impact to steel trade. However, in respect to aluminum, this really is not a big deal. There is no primary aluminum coming from the U.K and semi-fabricated trade is not that big either. The removal of duties will help those highly specialized imports of aluminum, but it won’t put a dent in our big primary aluminum deficit.

You can also bet that devious minds are already thinking about how to circumvent the remaining Section 232 tariffs for other countries by attempting to transship through the U.K. to get into the U.S. duty-free. This is NOT to suggest that the U.K. won’t be vigilant in monitoring for abnormalities in aluminum trade, but it is inevitable that some element of the trade will try this.

From the U.K.’s perspective, this is a deal they wanted. Since the U.K. exit from the EU27, they have been eager to do major bilateral deals with other trading partners. Agreeing to the 10% base line tariff and the auto quota seemed like small prices to pay. For the Trump Administration, a deal is a deal and another notch in the belt. The question now is when will the important deals come with China, the EU27, Canada and Mexico?

Century Aluminum’s greenfield smelter- No news from earnings release

Century (CENX) released earnings on May 7, and the market was looking forward to some news on the progress of their new smelter. We came away wanting. The company reiterated that it was still doing due diligence, seeking a power deal and a site, with engineering coming thereafter and probably in 2026.

There was nothing said about the status of power deal negotiations, nor was a site or sites mentioned. The question-answer session with analysts was remarkably devoid of a single question about the project.

One must conclude that they are no closer to a power deal than they were several months ago when they stated that they had been unsuccessful in securing power. In fairness to Century, it is a brutal environment to buy long-term power in. Data center growth continues to result in eye-popping estimates of electricity demand and how much investment the electric industry needs to spend on generation and transmission. Prices on the Chicago Mercantile Exchange (CME) Mid-Continent Independent Operator (MISO) network are still very high…. prices between $55-75 per megawatt hour (mWh) out to the end of 2026.

There have been rumors circulating that the Trump Administration may pull the $500 million grant given to Century for the project. This does NOT appear to be a statement about Century’s efforts to get the project over the line, but more about the broad budget cuts that the Administration is applying everywhere.

It’s about power, pure and simple

Century still deserves admiration for their efforts to get this smelter built. Their challenge is no different than that facing restart of their idled capacity plus Alcoa and Magnitude 7. It’s about power, power and power.

People need to get serious about addressing the major sticking point, which is competitive power. Until the Trump Administration gets realistic about means to increase power generation and transmission. We have all heard about “just drill baby”. The problem is that our aging natural gas pipeline system is not capable of transporting substantially large volumes of gas today or in the future.

Even if we solved that problem, there is a 5-year backlog to get a state-of-the-art gas turbine for generation. So, the notion of gas generated electricity is far off.

A more immediate opportunity for the Administration is to break the bottleneck of the Interconnect Queue. This is the amount of stranded generation that is waiting to connect to the conventional grid. That number is over 2,000 gigawatts. That number may not resonate with you. It is the equivalent of 2 BILLION kilowatts. That is an enormous supply of power that is waiting to enter the grid.

You ask, “what’s the holdup?”. The incumbent utility companies with stranded assets and rate structures highly regulated by Public Service Commissions with each state have little motivation to allow this new supply to enter the market. It’s economics 101. You bring 2 billion kilowatts of new supply into the market; prices would come under pressure. That pressure would undermine the incumbent utilities financial models. It is no wonder that this new supply is having trouble getting to the grid.

If the Administration is serious about aluminum production and manufacturing growth in general, they need to address this interconnect bottleneck as an immediate potential fix to the power market. Then Century has a fighting chance.