February aluminum market: Stability, uncertainty, and the weight of tariffs

Most respondents described the market as balanced, but with notable caveats. Some see an undersupplied scrap segment, particularly for common alloys like 3003 and 5052. Others expect seasonal supply constraints to ease as winter ends. A trader summarized the situation bluntly: “But fragile.” That fragility stems from geopolitical uncertainties and looming tariffs that could disrupt commercial flows while leaving production largely untouched.

Demand: A mixed picture with growth potential

Demand trends appear stable or improving, with some segments seeing an uptick thanks to new programs and an evolving product mix. However, the scrap sector is facing shifting dynamics, particularly in used beverage cans (UBC), where prices are falling following the Tri-Arrows closure. Automotive scrap availability is increasing due to weaker new sheet demand, potentially leading to short-term oversupply. One trader noted that when sheet demand rebounds, a production scrap shortage could follow, highlighting the cyclical nature of the market.

Performance expectations: Meeting forecasts, with some optimism

Most companies expect to meet their forecasts for the month. While confidence remains steady, the broader concerns about tariffs, freight, and material availability suggest that companies are keeping a close eye on external pressures that could shift expectations.

Key obstacles: Tariffs, freight, and supply constraints

Tariffs continue to dominate concerns, particularly around common alloy scrap availability and domestic capacity limitations. Freight challenges, including competition for trucks out of Mexico, remain an issue for recyclers and processors. One producer warned that if Canadian suppliers redirect metal elsewhere, smaller U.S. consumers could face serious disruptions.

The theme is clear: while contracts may be locked in, real-world execution is increasingly complicated.

New vs. obsolete supply: A structural shortage?

When asked whether new aluminum supply is sufficient to meet demand, the response was overwhelmingly negative. The U.S. has not expanded its production capacity since the 2018 tariffs, with one respondent calling it “shameful.” However, others noted that supply always exists, at a price. The real challenge is the mix of scrap, RSI, secondary alloy, and primary ingot required to meet demand efficiently.

The outlook for obsolete scrap supply was more mixed, with some seeing adequacy in certain segments and others warning that demand will always outstrip available post-consumer scrap. The U.S.’s aging smelters remain a weak link, with one trader suggesting they will be “milked until they are dead” unless domestic energy policy shifts to make smelting a viable investment again.

Scrap flows and spreads: Stability now, but widening ahead?

Non-ferrous scrap intake appears stable, though one respondent expects conditions to worsen. Spreads are mostly stable but could tighten as the year advances. The real concern lies in UBC pricing, with most expecting levels to settle in the 80%-82% range, while others anticipate a further drop below 79%, or even under 70% by mid-March.

Domestic vs. export demand: A shift in priorities

Domestic demand is holding steady, while export demand appears weaker. One producer emphasized that if the proposed 25% tariffs go through, U.S. aluminum will become uncompetitive in global markets. This could redirect material toward domestic consumption, but whether the internal market can absorb it remains an open question.

Freight and container costs: Stability…for now

Freight costs are mostly stable, though some respondents argue that energy-related tariffs could send fuel prices soaring. Container costs are roughly the same, with the market indicating stability, providing some relief in logistical planning.

Midwest premium outlook: Diverging views

Expectations for the Midwest Premium are mixed. Some see stability, while others anticipate a drop, particularly if the 25% tariff on Canadian P1020 is lifted. One trader expects prices to hit closer to $0.50 per pound “in no time,” while another suggests that removing tariffs could cause an immediate $0.10 drop. The interplay between policy decisions and market pricing remains a key wildcard.

Tariff impact: Cost pressures rising

The new 25% aluminum tariffs are widely expected to increase costs, though some downstream businesses expect minimal impact. Scrap processors note that the tariffs do not apply directly to their segment, but the broader market effects could still create disruptions.

What this means going forward

1. Tariff uncertainty is a major disruptor: Whether it’s the 25% aluminum tariff or potential energy tariffs, these policies have the potential to upend supply chains, pricing, and competitiveness. If Canadian suppliers divert material elsewhere, U.S. buyers, especially smaller consumers, could face serious shortages.
2. The scrap market is in transition: UBC prices are falling, automotive scrap is becoming more available, and obsolete supply concerns persist. If demand rebounds, production scrap could become scarce, causing further imbalance.
3. Capacity constraints remain a structural issue: The U.S. has made little investment in expanding primary production, making it increasingly reliant on imports. Even with high tariffs, domestic capacity remains inadequate.
4. Freight and energy costs are the next big risk factor: While logistics costs are stable now, potential energy-related tariffs could send fuel costs sharply higher, adding another layer of uncertainty.
5. Market fragility will define 2025: While demand appears stable for now, the combination of tariffs, supply shifts, and freight challenges means that stability could be short-lived. The industry will need to navigate these pressures carefully in the months ahead.