AMU Community Chat: Tanners on tariffs, smelters, and year ahead

For the US-based aluminum market, there’s “not a great domestic market to protect, at least on the smelter side,” Tanners said Dec. 16.

There are only four active primary smelters in the US—two operated by Pittsburgh-based Alcoa and two by Chicago-based Century Aluminum. That’s quite a drop from 2000 when the US had 23 primary smelters operated by 12 different companies.

“It’s pretty hard to justify building a new aluminum smelter unless you can get a lot of help on the financing or some sort of secure, cheap power deal,” Tanners said.

“Alcoa said recently that they need 30 megawatts an hour of electricity, and the hyperscalers are happy with over 100 so it’s a very different and very challenging setup there for new capacity.”

The tariffs enacted on aluminum therefore have really been an import tax on consumers.

“The US imports almost 4 million tons a year and only produces about a million tons,” Tanner continued. “I think it’s going to be really interesting to see, if you see demand destruction from higher aluminum prices.”

Aluminum can be substituted for copper, which is seeing soaring prices. But there could be some momentum behind switching from aluminum to steel in some auto applications.

“There’s some truth to the switching to steel from aluminum on the margin, but we don’t expect a major change because it’s hard to reengineer some of these auto plants.”

Midwest premium

As the Midwest premium has jumped to the high 80-cents per pound range through the year, Tanners was asked if there’s reason to believe tariffs on Canadian aluminum could be reduced.

She said that it seems unlikely.

“Even if we carve out an aluminum deal with Canada where there’s a zero tariff, let’s just say, the Midwest premium doesn’t come down, because Canada can’t supply all the aluminum the US needs,” Tanners said.

She noted the US doesn’t make enough aluminum and will not by the end of the decade. “There’s no chance, no way, no how, we’re going to be producing.”

Aside from Canada, the US also imports from the United Arab Emirates and other countries. So the Midwest premium will likely stay high to attract those incremental tons.

“There’s nothing in it for Trump,” Tanners said. “He doesn’t get to do a happy dance and say, ‘Aluminum prices have come down,’ or ‘I saved you money on your can of whatever.’”

“That one’s a hard one to call, but irrespective, I don’t think that prices are going to come down easily for aluminum anytime soon.”

Russian ceasefire

If a successful ceasefire is brokered between Ukraine and Russia, that would, in theory, reopen Russian markets. However, Russia has still been producing and shipping steel, aluminum, nickel, and other products to China, and then China has been shipping its products, Tanners noted.

“If other countries decide all is forgiven and they’re going to take Russian material, then that would just disrupt those trade flows. But it’s not like Russia’s put a lid on its production in meaningful way.”

“The other thing we get asked about is Ukrainian rebuild. But those always take so much longer than people anticipate,” Tanners continued. “So that could be a positive catalyst… If they decide all is forgiven, and European energy prices come down, maybe they restart some smelters, maybe they ramp up some steel production. But that’s kind of extrapolating a lot of positives and that I think are hard to contemplate, because we have to get there, and it’s been, what, two and a half years that we’ve been waiting for it.”