CRU Aluminum: Trade Deal Opens US to More Shipments from India

“As part of the market access, going forward, the US Department of Commerce will clear 70% of steel and 80% of aluminum applications for products originating in India,” the ministry added. “[This will] provide significant impetus to raise India’s steel and aluminum exports by about 35%.”

In return, India has agreed to remove retaliatory tariffs on some US products. However, the prevailing basic import duty applicable to all products will continue, India’s Commerce Ministry said.

The WTO cases included specific US anti-subsidy (CVD) measures on hot-rolled carbon steel flat products from India. The other disputes, some of which have lasted more than a decade, involved solar cells and modules, the renewable energy sector, agricultural goods, and India’s export-related measures.

As of now, there are only high-level details of the deal. For aluminum, it could increase the flow of primary aluminum and extrusion trade between the two countries.

Second Half Outlook Rife With Challenges

Economic news turned around this month and was overall very positive. GDP outpaced expectations slightly, while inflation’s downward trend strengthened. The job market remained healthy with unemployment continuing to sit below long-term averages. Consumer sentiment also took a positive turn and travel is still at all-time highs domestically in the US. This all culminated in the Federal Reserve choosing to hold off on another interest rate hike hinting that rates could have peaked.

This is good news for the aluminum market as automotive sales and new home starts are the two main drivers of end-use demand. However, it’s not all positive as now that rate hikes have slowed, it could push those on the fence consumers to hold off longer in hopes rates drop in the back half of the year. As demand is already down double digits year to date (YTD) for extrusions and softening for flat-rolled products, any factor that would push demand further out would put a damper on a potential second half of the year recovery.

Another factor on the nonresidential side of construction is the tightening of lending by banks. The banking sector woes are in the past and the spillover was minimal, but the tightening of lending standards continues due to the uncertainty and higher interest rates. This could potentially hamper big projects scheduled for the back half of the year. The vacancy rate has also started to climb for the first time in over a year. Its still well below historical averages but could be a sign that multifamily housing supply is catching up with demand.

A last factor to look out for in the back half of the year is inventory levels. Inventory overhang throughout the entire aluminum value chain after the sudden slowdown in 2022 Q4 has been a major topic of conversation throughout the first half of 2023. Everything from beverage cans to solar panels has shown signs of inventory building and it has started to work its way further down the value chain. Originally, it was thought that the inventory would be worked through in the first half of the year, but has been pushed further out into late 2023. Automobiles, aerospace, and defense applications are the few exceptions.

Vancouver Dockworkers Target Strike, Effective July 1

Just as labor negotiators were wrapping up a new six-year contract between the International Longshore Workers Union (ILWU) and the Pacific Maritime Association servicing 29 US West Coast ports, rumors came surrounding a strike call further up the coast in Vancouver, British Columbia. In keeping with Canadian Labour Code, the three-day notice was given by the union on Wednesday of this week. The rank and file had nearly unanimous support for their strike vote. 

The ILWU-Canada and British Columbia Maritime Employers Association (BCMEA) are working through port automations, outsourcing and economic conditions in seeking a new agreement. Reported to be handling in excess of $220 billion of goods each year, once landed, the freight moves inland into Canada and the US. Consumer durable goods, apparel, autos and auto supply chain shipments may be at risk as well as aluminum semis imported from Asia.

The proposed strike comes at a critical time as back-to-school and seasonal holiday items begin to ship. Related loss of inland freight movement, along the rails and motorways has a deleterious effect just as commercial freight lanes were recovering from the stresses of the Covid-19 pandemic.

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By Matthew Abrams, CRU Research Analyst, matthew.abrams@crugroup.com