CRU: Aluminum news roundup

These executive orders mostly center around reversing several of Biden-era policies on trade, climate change, immigration and social diversity and inclusion programs. Some of Trump’s orders on trade, if fully implemented will have far reaching impacts on US metal markets.

Probably the most immediate and impactful of his actions was on deciding to apply a 25% import tariff on Canada and Mexico by Feb. 1 unless they clamped down on the movement of undocumented migrants and fentanyl. It is unclear at this point around what measurable actions would need to be implemented to be able to avoid the 25% import tariffs by the two target countries.

Consensus appears to be building that given the delay till Feb. 1 that the threat of these tariffs may be perhaps the opening gambit to reopen the USMCA agreement, which technically is not up for renegotiation until 2026.

On metal markets, it should be noted that the US imports a very significant 70% of its primary metal needs from the Canadian smelters and a tariff of 25% would impact not just the incoming metal costs but would also have a spillover impact on an already tight scrap market. Reverberations into the key downstream markets of automotive, building & construction and beverage can sheet will be felt given their significant usage of aluminum in their applications.

Trump also threatened a 10% tariff on Chinese imports by the Feb. 1 deadline as well if sufficient efforts were not put in place to stem the flow of fentanyl from China into the neighboring countries of Canada and Mexico. These tariffs would come on top of the levies that Trump imposed on the $300 billion worth of Chinese imports in his first term, all of which were kept in place by the Biden administration with additional imposed levies on Chinese electric vehicles, semiconductors, batteries, etc.

Trump has also directed federal agencies to conduct a full review of current trade issues between US and its partner countries, including China, by April 1 with the remit of spotting persistent US trade deficits, unfair trade practices and currency manipulations.

The executive action directs the Commerce, Treasury and the United States Trade Representative to build an “External Revenue Service” to collect tariffs, identify unfair trade practices and to review existing trade agreements for potential improvements.

The review would also provide recommendations on remedies including a global supplemental tariff and changes to duty exemptions. It is unclear at this point whether the global supplemental tariff will be over and above current proposed tariffs, but it is also very likely contributing to the volatility in the marketplace.

Volatility in LME and Mid-West Premium following Trump tariff actions

Trump in a speech at the World Economic Forum, appeared to soften his tone on global tariffs, particularly with regard to China, and supported lower interest rates resulting in the US dollar easing against major currencies.

The 3-month LME price appeared to gain on the softer dollar and was last seen trading at $ 2643/t. The pre- and post-election rhetoric on tariffs, particularly in relation to Canada and Mexico coupled with the threat of a potential port strike, had led to significant run-up in the MWP from its pre-election range of 18-19c/lb to its current 23-24c/lb range.

The uncertainty around tariffs and their full implementation is also seen in forward MWP pricing for April through December trading between 29-31c/lb. Most traders expect a period of continued volatility in LME and MWP for the immediate future given the uncertainty around tariffs, their implementation and likely counter responses from impacted countries.

LME on final stages of approving Hong Kong as metal storage location

According to a Jan. 14 article by Reuters, the London Metal Exchange is concluding its process of evaluating Hong Kong as a location for its global metals warehousing network.

Hong Kong, with its strategic location, is considered a gateway into mainland China. China is the largest consumer of industrial metals. To be able to store metal traded on the LME has been a strategic goal of the Hong Kong Exchange and Clearing, which had bought the LME in 2012. Expansion could mean a major boost to LME trading volumes if successful, but industry sources have cited Hong Kong’s exorbitant storage costs as a key deterrent.

Nevertheless, the application to list Hong Kong as a delivery point has been submitted and assessed, and the LME confirms that it satisfies all criteria. The LME is in the final stages of the approval process which involves input from the relevant LME metal advisory committees which they hope to conclude by early 2025.

Rio Tinto and Glencore merger talks no longer active

According to articles published by Reuters as of Jan. 17, Rio Tinto and Glencore had held merger discussion talks but these talks were brief and “did not go anywhere.”

If the merger deal had gone through, it would have created the world’s biggest mining concern with a market cap of $158 billion surpassing BHP’s $126 billion market cap. It is believed that Rio was interested in Glencore copper assets but not their coal assets, and that this was the likely reason for the deal not moving forward.

Copper is in high demand given its role in electrification and renewable energy, and it is no surprise that global mining companies have been eyeing merger and acquisition strategies of late. This appears to be the rationale behind BHP’s $49 billion for their smaller rival Anglo American last year, a deal that fell through due to issues with the deal’s structure.

This analysis was first published by CRU. To learn about CRU’s global commodities research and analysis services, visit www.crugroup.com.