Column: US aluminum consumers pay the spiraling cost of tariffs

American aluminum buyers are now paying an eye-watering 68% premium over the London Metal Exchange (LME) price to get physical metal.

This is of course a direct of result of US President Donald Trump hiking import tariffs from 10% to 25% in March and again to 50% in June.

But the premium for physical delivery in the US Midwest is trading another $560 per metric ton over any implied tariff cost, propelling the “all-in” price of aluminum above $5,000 per ton.

The country is clearly running short of a metal used across a wide array of industries from automotive and aerospace to construction and packaging.

On paper, the record premium for US delivery should attract much-needed supply. In reality, however, things may not be that simple.

Imports down, stocks shrink

Tariffs were meant to stimulate domestic primary aluminum production after a prolonged period of decline which left just four operating smelters.

The immediate impact has been limited to Century Aluminum’s restart of 50,000 tons of idled capacity at its Mt. Holly plant in South Carolina. The smelter will return to full capacity by June.

There are a handful of greenfield projects but these are several years away from producing first metal, even assuming they can compete with Big Tech for long-term power supplies.

In the interim, the US remains dependent on imports of primary metal and these have been falling. Volumes were down by 14% in the first 10 months of 2025 relative to 2024.

Canada, historically the largest supplier to the US market, started diverting shipments to Europe around May last year.

It exported 225,000 tons to the Netherlands, 89,000 tons to Italy and 29,000 tons to Poland between May and October, according to the World Bureau of Metal Statistics.

US stocks of primary metal have been sliding.

The short time-lag between tariff hikes didn’t allow for much preemptive stockpiling and in-country inventory has shrunk from 750,000 tons at the start of 2025 to below 300,000 tons, according to consultancies Harbor Aluminum and Wittsend Commodity Advisors.

The elevated US premium is a red warning light that the country needs more aluminum.

Cross-Atlantic competition

The problem for US buyers, however, is that Europe is also short of aluminum. European duty-paid premiums have surged from under $200 per ton over LME cash in June to over $340 per ton.

The region is being squeezed by a triple supply hit.

South32’s decision to mothball the Mozal aluminum smelter in Mozambique due to high power prices removes a key supplier to the European market.

Another core supplier, the Grundartangi smelter in Iceland, owned by Century Aluminum, cut production by two-thirds in late October due to equipment failure. It will take an estimated 11-12 months to recover fully.

Meanwhile, imports of Russian metal are set to be fully switched off this year in line with the European Union’s 16th sanctions package. European buyers were granted a one-year phase-out grace period which expires next month.

Rising local premiums are also being underpinned by Europe’s Carbon Border Adjustment Mechanism (CBAM), which came into effect this month, lifting the price of imports with higher carbon footprint.

Capped supply

In times gone by, traders would simply have bought up LME stocks and shipped them to the United States to profit from the premium spike.

However, Russian metal accounts for a significant part of LME registered tonnage, 58% as of the close of December, and cannot be imported to the US because of sanctions.

Moreover, there is much less aluminum sitting in LME warehouses than in the past, when the global market was characterized by persistent oversupply.

Total LME inventory, both registered and stored in the off-warrant shadows, closed 2025 at 669,000 tons, down by 331,000 tons on the start of the year.

That speaks to the structural shifts that are playing out in the global market.

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Chinese operators are now running close to the government’s mandated capacity cap, meaning the world’s largest producer is at or very close to peak output.

Chinese production growth slowed from 4% in 2024 to 2% last year, according to the International Aluminium Institute.

Yet smelter margins have been highly profitable. While the aluminum price has been rising, that of intermediate product alumina has cratered. It’s the sort of combination that would once have triggered a rush of new and restarted capacity but not any more.

China is also importing ever more primary metal. Inbound volumes rose by 19% year-on-year in the first 11 months of 2025. A significant portion came from Russia, which has pivoted away from Western buyers due to sanctions.

China’s exports of semi-manufactured products, by contrast, fell by 11% over the same period, reflecting the removal of the tax rebate on outbound shipments in December 2024.

The global market is tightening, a process that is complicated by the simultaneous fracturing of pricing between regions.

Flow-through

Were the tariff impact on US pricing playing out in isolation, it would be quickly resolved by physical arbitrage.

But it’s not. There are multiple moving parts in the physical aluminum market and right now they are serving to tighten supply just about everywhere.

The elevated cost of aluminum in the US could prove sticky, which is bad news for the ultimate consumer.

The Trump administration’s extension of 50% tariffs to a wide spectrum of aluminum products in August has kept midstream processors onside but serves to accelerate the flow-through of higher primary metal pricing to the ultimate buyer.

US consumers are in for a shock unless imports pick up soon.

(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)

(Editing by Marguerita Choy)