US offers to halve aluminum duties for firms building in US

The Trump administration announced an incentive program under which companies that build, expand or refurbish aluminum plants in the US would receive a tariff discount for the metal they ship into the country from abroad.

The plan, announced on Monday, would cut tariffs on imported aluminum to about 25% from 50% for companies that have fulfilled the new requirements and have been approved by the US.

President Donald Trump had imposed the 50% duty as part of efforts to boost domestic capacity of the lightweight metal used in everything from automobiles to washing machines. But the effort yielded only sporadic success and many nations have lobbied for a reduction.

More importantly, the US doesn’t have enough primary aluminum capacity to meet demand. Instead it heavily relies on imports, especially from Canada and the Middle East to fulfill domestic consumption.

The US currently has four operating aluminum plants, a number that has declined from 23 smelters in 2000. About half of all aluminum consumed in the US is produced in Canada, where the energy-intensive facilities use cheaper forms of power like hydroelectricity. The power economics loom large over domestic expansion, with the last new smelter having been built in the US more than four decades ago.

The punitive 50% tariff has driven the so-called US Midwest premium — the amount added to global price benchmarks to deliver the metal to that region — sharply higher since it came into effect in June last year. Another supply shock stemming from the Iran war helped boost the regional aluminum premium by nearly 100%.

The US Midwest premium is the proxy for the amount of money US manufacturers pay to make products such as appliances, beverage cans and automobiles. They have essentially been paying the highest raw material prices in the world and have adopted a just-in-time buying pattern, buying enough to handle immediate production needs.

Aluminum prices on the London Metal Exchange, the global benchmark, have also climbed sharply this year as the dual shocks tightened the market. LME aluminum prices settled 0.3% lower to $3,140 a metric ton prior to the White House announcement.

(By Joe Deaux and Yvonne Yue Li)