(Repeats from Friday. The opinions expressed here are those of
the author, a columnist for Reuters.)
* U.S. Imports of Canadian aluminium: https://tmsnrt.rs/2YTWhbE
* U.S. Midwest Premium: https://tmsnrt.rs/2Y2p6TJ
LONDON, Aug 14 (Reuters) - The United States will reinstate
tariffs on imports of Canadian primary aluminium this weekend.
This is not unexpected despite a ferocious rearguard
lobbying campaign by a broad spectrum of U.S. consumers.
Aluminium has been a pillar of the Trump Administration's
"America First" trade agenda from the start. Along with steel it
was early designated a sector critical for national security,
leading to the imposition of 10% tariffs on imports in 2018.
Unfortunately, the pillar is wobbling.
Alcoa is curtailing its Ferndale smelter in the state
of Washington, reducing the number of domestic operating plants
to six. Century Aluminum, which operates three smelters
and has led the lobbying charge against Canadian imports, has
just announced a quarterly loss of $26.9m.
Another smelter casualty in a U.S. election year would be a
public relations disaster.
However, Canada is being made the scapegoat for market
forces determined first and foremost by China, the world's
largest producer and exporter of aluminium.
This trade skirmish between Western allies reinforces the
sense of missed opportunity in tackling China's growing
dominance of the global supply chain.
BATTLE OF THE SURGE
The reimposition of tariffs on Canadian primary unalloyed
aluminium is down to what President Trump described as "a surge"
of imports since Canada was exempted in May last year.
Pro- and anti-tariff lobbyists have waged statistical war
over this apparent "surge".
Canada has historically been the largest supplier of primary
aluminium to the U.S. market with volumes fluctuating
significantly between 2.00 and 2.50 million tonnes over the last
This historical volatility allows both sides to use the same
data to come up with diametrically different conclusions.
But even if there has been a "surge" of imports in recent
months, it's been driven by market rather than tariff forces.
Demand imploded in the United States in the first half of
2020 as lockdowns and quarantine measures hit both automotive
and aerospace sectors.
Aluminium smelters responded by maintaining throughput but
switching production from customer-tailored alloys to
"commodity-grade" metal. This can be sold more easily to the
merchant market or to the market of last resort, namely the
London Metal Exchange (LME).
The last global crisis of 2009 saw huge amounts of metal
migrate towards LME warehouses in Detroit.
A similar pattern is emerging this time. Although LME
warehouses in Detroit currently hold no warranted metal,
aluminium is accumulating in the statistical shadows.
The LME's new report on shadow stocks shows 120,000 tonnes
sitting in Detroit at the end of June, up from 67,000 tonnes at
the end of March. That's metal that is being stored under
contracts referencing LME delivery. There may be still more
outside of that reporting net.
There are no LME delivery locations in Canada and it is
quite possible that some of the import "surge" has simply been
metal heading for exchange storage and financing rather than
competing with U.S. production.
It's telling that the Trump Administration has slapped
tariffs back only on unalloyed metal, presumably because alloy
imports have fallen during the demand meltdown.
US CONSUMERS PAY THE PRICE
The market has been quick to price in the Canadian tariff
U.S. consumers pay both the basis LME price and a premium
for Midwest delivery. The latter, traded on the CME as an index
linked to S&P Global Platts' assessment of the domestic market
, has surged from 8 cents per lb in May to over 15 cents.
This is pretty much the level identified by analysts at Citi
as the required price to incentivise imports to the U.S.
domestic market, which remains, tariffs or no tariffs, dependent
on flows of both primary aluminium and products. ("The Aluminium
Book: A New Era for Aluminium", Aug 2, 2020).
U.S. consumers have to absorb this higher price, whether
they buy tariffed or tariff-free metal. They even pay it if they
use domestically-sourced scrap, as can manufacturers have
discovered to their cost.
This is the way tariffs work. Any producer of any commodity
will seek the highest potential price afforded by trade
As a grouping of U.S. users ranging from the Beer Institute
to the National Association of Trailer Manufacturers noted in a
July 20 letter to the White House, "this money goes to the
seller, not the Treasury, and payment of the premium is
NO VIABLE STRATEGY
It's a price worth paying, according to the Coalition for a
Prosperous America (CPA), a vocal proponent of Trump's "America
First" trade policies.
The CPA concedes that China's huge flow of exports has been
the root problem for U.S. producers in recent years but no-one
has come up with "a viable strategy for reducing China's
oversupply," according to CPA chief economist Jeff Ferry,
writing in support of renewed Canadian tariffs.
In truth, though, the United States has missed two prime
opportunities to tackle China's over-production.
The previous administration's parting shot on the issue was
a full-blooded complaint to the World Trade Organization (WTO),
which could have formed the platform for the sort of
multilateral pressure that led to China cutting 150 million
tonnes of steel production capacity.
However, this administration doesn't do the WTO or anything
associated with President Barack Obama.
The second opportunity came from the Commerce Department's
landmark January 2018 report finding that aluminium was critical
to national security and that import restrictions were needed.
One option suggested was penal tariffs of 23.6% on imports
from China, potential transhipment countries Hong Kong and
Vietnam, as well as Russia and Venezuela.
The U.S. could have directed its considerable trade
firepower at the source of the global oversupply problem.
Rather, President Trump chose the path of blanket tariffs at
10%, rounding up Commerce's suggested 7.7% duty and paving the
way for the sort of friendly-fire dispute currently playing out
Canada has already vowed to respond in kind to the
reimposition of tariffs on its exports, which is how trade
restrictions tend to multiply.
Both U.S. and European aluminium sectors are launching ever
more anti-dumping cases against specific aluminium products as
they play whack-a-mole with Chinese exports.
The European Union has just initiated a probe into imports
of Chinese flat-rolled products.
The U.S. Commerce Department last week determined in favour
of countervailing duties on imports of alloy sheet from Bahrain,
Brazil, India and Turkey. This is product in all likelihood
displaced by Chinese exports in other regional markets.
What's missing is a "viable strategy".
A change of administration might just possibly give the
United States a third opportunity to tackle China head-on about
its aluminium dominance.
But time is running out.
China's huge and still-growing aluminium smelter sector
broke another monthly production record in July.
(Editing by Jane Merriman)