Trump tariffs lift US metals prices, industry set to struggle

Trump imposes 25% tariffs on steel, aluminium imports

London: Prices of industrial metals in the United States extended gains on Tuesday, reflecting the impact of US President Donald Trump's 25 per cent tariffs on steel and aluminium as industry will struggle to source enough domestic material.

While the stated goal of the new tariffs is to aid struggling US metal producers, it will take time to reopen closed plants and build new ones to make up for large amounts of imports.

In the meantime, traders are marking up US metals prices to reflect the price automakers and other industries will have to pay for foreign metal when the measures take effect on March 12.

The biggest impact will be on aluminium, used in transport, construction and packaging, with net imports accounting for around 82 per cent of US requirements, according to Morgan Stanley.

The US aluminium premium over the global benchmark on the London Metal Exchange has shot up by a quarter since Friday to 35 cents per pound and has surged by 60 per cent since Trump was elected.

"Aluminium capacities would have to be massively expanded in a short period of time to replace even a portion of the imports with domestic production," said analyst Volkmar Baur at Commerzbank.

The American Primary Aluminum Association praised Trump for the tariffs.

"Today is a great day for the US aluminum industry," said Mark Duffy, president of the association.

But domestic aluminium smelters produced only 670,000 metric tons of the metal last year, down from 3.7 million in 2000, while US demand was 4.3 million tons, US data showed.

About 470,000 tons of US production has been curtailed, and could in theory restart, said Amy Gower at Morgan Stanley.

"But this would take at least 6-12 months in our view, depending on how much preparatory work has been done."

Building new smelters would likely take even longer, she added.

"I don’t think anyone in the US is more in favour of increasing domestic aluminum production than me, but it has to be done thoughtfully over several years,” said Brian Hesse, CEO of New York-based PerenniAL.

“You can’t cut your nose off to spite your face," added Hesse, whose company distributes slab, wire rod and billet produced with aluminium used in products such as wheels and window frames.

Steel, Copper

The US imports about a quarter of its steel, and domestic prices for US hot rolled coil steel, a semi-processed product, have jumped by nearly 40 per cent since last Thursday.

"Supply growth would not offset these volumes in most products, resulting in materially higher US prices, if implemented," said analyst Andrew Jones at UBS.

"The larger impact could be the negative impact on growth from an escalating trade war."

Wider fears about slower economic growth and metals demand due to a possible trade war were reflected in a broad retreat in global industrial metals prices on Tuesday.

While Trump did not impose tariffs on copper on Monday, he did threaten duties on the metal last week.

Expectations that copper would be next propelled the premium of US futures traded on Comex over the global benchmark on the London Metal Exchange to a record peak on Monday.

It pulled back slightly on Tuesday to $725 a ton from $930 at the close on Monday, but it is still roughly double its level at the end of January.