If Canadian tariffs lower, it may not matter much for the Midwest premium

Beerman said even under the current 50% tariff regime imposed by both countries, Alcoa has 900,000 metric tons (mt) of production from its Canadian operations, the majority of which is headed to the US. The company is paying more than $1 billion in tariffs to export that.

“However, the Midwest (premium) is fully compensating us for that, as well as returning a margin because of the tightness in the tons,” Beerman said at the Jefferies Global Industrials Conference this month.

“If we were to receive a favorable tariff rate on Canada — think of that $1 billion in tariff being cut in half — so that’d be a major benefit to Alcoa,” she said. “Some of the proposals even had a quota rate that would also be favorable to us.”

Where will Midwest premiums land?

The US requires about 4 million metric tons of imported aluminum. Canada has supplied about 3 million mt of that.

CRU Group said if Canada and the US resolve their latest trade fisticuffs, it’s possible Canada’s duty on aluminum exports could be slashed back down to 25%. But other countries would still be left at 50% unless a wider tariff reduction is enacted.

“If this transpires, we think this will substantially affect trade flows but have a much more muted impact on premiums,” CRU Group wrote in a recent report. In recent months, an increasing amount of Canada’s primary aluminum has been shipped across the pond to Europe as Canada looks to expand its relationship with the European Union.

CRU said it’s possible the Midwest premium could slip if Canada resumes shipping primary aluminum to the US. But the balance in supply would still be coming from other countries, likely in the Persian Gulf.

Alcoa’s Beerman also said if other countries get reduced tariffs, additional imports to the US could drag down the Midwest premium, but not by much.

“With the US still needing to incent the import of 1 million tons, even if we were to have a favorable rate with Canada, we don’t see Midwest dropping significantly. It might come off a little bit, but we wouldn’t see it returning to pre-tariff levels,” Beerman said.

That sentiment was echoed in a recent report by Timna Tanners, managing director, Wells Fargo, who noted reduced tariffs likely wouldn’t affect the Midwest premium (MWP) because Canada alone can’t supply all of the primary aluminum needs in the US.

“The MWP would need to remain at the price of the marginal supplier,” Tanners wrote. “We don’t anticipate a lower MWP unless tariffs are reduced more broadly to a level sufficient to cover the US supply deficit.”