U.S. Likely to Push Through 200% Tariff on Russian Aluminum

News of the U.S. enacting a 200% tariff on Russian aluminum has evoked a mixed bag of reactions. Some experts say it will have significant implications for the global aluminum market, including a potential aluminum shortage. Others feel the tariff will only impact price speculation. Generally, the latter group expects little else to change with supply and demand, at least in the short term.

Some Experts See Benefits, Others Worry of an Aluminum Shortage

Aluminum is a vital industrial metal with a wide variety of applications. This includes everything from automobiles, to construction to consumer goods. Currently, Russia accounts for nearly 10% of global aluminum production. However, the United States has reduced its dependence on Russian supply to just over 2% of its total needs.

Indeed, the U.S. has completely re-strategized its aluminum sector roadmap. Currently, the focus is on revitalizing the domestic industry and further reducing import dependency. If President Biden enforces this new tariff, U.S. aluminum manufacturers will benefit from increased demand. This will cause aluminum consumers to shift away from Russian imports. In the short term, this could lead to increased production, profits, and job creation in the US aluminum industry.

As for the long-term effects, experts remain hesitant to hazard any guesses. Will the tariff cause any significant disruption to the global aluminum market? What would an actual aluminum shortage look like? Though official predictions are hard to come by, some insiders admit that global aluminum prices could increase, leading to higher costs for consumers. This, of course, could have a cascading effect on the global economy.

Still, other experts counter these assumptions with claims that aluminum is already in short supply. This report quotes a Jefferies analyst as saying that U.S. aluminum imports from Russia trended lower throughout ’22. They claim that the imposition of a steep tariff now would effectively end U.S. metal imports from Russia and tighten the domestic market. The expert also admitted that U.S. company Alcoa would stand to gain a lot from the end of Russian imports to the U.S.

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Canada Could Ensure There is No Aluminum Shortage in the U.S.

Fortunately, the U.S. already has several alternative sources of aluminum supply. The biggest contribution comes from Canada, which today is one of the world’s largest aluminum suppliers. With its high volume of aluminum reserves and a well-developed mining and refining industry, Canada is a good friend for the U.S. to have right now. In fact, many expect the mutually beneficial relationship to stand the test of time and take care of much of the U.S.’ aluminum needs.

Australia and Brazil are two other major aluminum producers with a history of exporting metal to the U.S. China, too, was on this list for years. However, with U.S.-China relations hitting new lows every passing month, it’s anybody’s guess what the future holds.

Whatever the source, the U.S. currently imports a huge percentage of aluminum for use in a wide range of products. The biggest consumers by industry include transportation, packaging, building, electronics, and consumer goods.

According to Forbes, the new tariff is bound to hit Rusal, the world’s leading aluminum producer, extremely hard. Founded by billionaire Oleg Deripaska, Rusal is the primary reason Russia evolved into the world’s second-largest aluminum exporter in 2021. However, according to the company’s first half of 2022 financials, the Americas account for just around 7% of total Rusal sales.

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Where Will Russian Metal Go Instead?

Some market experts feel that any further aluminum supply disruption would affect the EU, followed by Asia, before it affects the U.S. Whether there is truly an aluminum shortage or not, supply has continued to decline for over a year. In fact, the global supply of primary aluminum was down around 0.6% year-on-year in the first half of 2022, reaching just 33.6 million tons.

Meanwhile, several European and U.S. aluminum smelters remain closed or face pricing pressures due to rising electricity costs. 1 million tons of combined EU and U.S. aluminum smelting capacity was fully or partly closed during Q1 and Q2 of 2022. So, if Russian aluminum is blocked from the U.S. market, where will it go? The most common answer seems to be China.

As per data revealed by the LME, Russian metal has been regularly flowing into its network of warehouses lately. This is in line with the organization’s expectations back when it debated banning Russian suppliers. In fact, this report shows that metal from Russia currently accounts for 94% of live copper inventories, 41% of aluminum, and 16% of nickel.

A new debate could add fire to the discussion about if the LME should continue allowing Russian metal to trade. After a market consultation late last year, the LME ruled against initiating any action against Russia.

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