Column: US aluminum tariffs threaten scrap clash with European Union

US President Donald Trump’s move to double tariffs on aluminum imports heightens the risk of a full-blown scrap war with the European Union.

Although they are supposed to be blanket tariffs with no exceptions or exemptions, there is one significant gap in the tariff wall.

Aluminum scrap is explicitly excluded on the grounds it constitutes a key raw material for US manufacturers.

The Trump administration’s decision to lift aluminum tariffs to 25% effective the start of March has already caused US imports of recyclable material to rise.

This week’s doubling of the tariff rate to 50% could turn the import flow into a flood.

The European Union, which is mulling export duties on aluminum recyclables to stop what it terms “scrap leakage”, is coming under pressure to move sooner rather than later.

US premium surges again

The US Midwest aluminum premium has rocketed to a record $1,325 per metric ton after Wednesday’s doubling-down on import tariffs.

That’s the price US buyers will pay over and above the international price traded on the London Metal Exchange (LME), currently $2,430 per ton for cash metal.

What once reflected the cost of transport to get metal to the US Midwest manufacturing hub is now a tariff premium, capturing the fracture of the global aluminum pricing structure.

US consumers of aluminum goods will ultimately foot the bill but mid-stream processors are likely to do well.

Fabricators converting raw metal to semi-finished goods such as can sheet were the prime beneficiaries of the first Trump administration’s 10% tariffs, according to a report by consultancy Harbor Aluminum commissioned by the Beer Institute.

Mid-stream processors passed on the tariff, even if the raw material was domestically sourced scrap, Harbor found.

The new tariffs will incentivize fabricators not only to maximize their domestic purchases of scrap but to tap overseas markets, where US buyers can now outbid just about anyone else for available material.

Scrap wars

US imports of aluminum recyclable materials jumped to over 80,000 tons in March, the highest monthly volume since 2022.

There were sharp increases in supply from Canada and Mexico, the two largest and nearest suppliers to the US market.

However, the tariff differential has started to draw material out of Europe, according to the European Aluminium association.

Exports from EU countries to the United States spiked in the first quarter of the year, it said.

They are only going to accelerate as the transatlantic price gap widens after this week’s doubling of tariffs.

The EU is facing a “full-blown scrap crisis”, according to the association. Director General Paul Voss called on the European Commission to immediately impose a corresponding duty on scrap exports to the United States.

The Commission has already identified high aluminum scrap exports as a key hurdle in its ambition to meet the bloc’s “Circular Economy” targets.

A March “Action Plan” for both the aluminum and steel sectors promised a decision by the third quarter of this year on suitable trade measures, including reciprocal export tariffs on countries “that apply unfair subsidies” to their recycling industries.

There’s now a sense of urgency that some sort of defensive trade barrier will be required to stem export flows.

China exposed

Aluminum scrap is a highly globalized marketplace but that looks set to change as Europe figures out how to stop the loss of raw material to the United States.

Caught in the middle of this tug-of-war is China, the world’s largest aluminum scrap buyer.

The country has imported 1.8 million tons in each of the last two years and although it sources much of its material from Asia, it is a significant buyer of both US and European end-of-life scrap.

Beijing last year relaxed the purity rules on imports of both copper and aluminum scrap to encourage greater domestic recycling.

This is particularly important for China’s aluminum sector, where production of primary metal is now close to the government’s mandated capacity cap, meaning supply growth will have to come from recycling.

Chinese buyers are facing the twin challenge of export restrictions in Europe and competition with US players in their own Asian supply chain.

The scrap wars have only just begun.

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

(Editing by Jason Neely)