AWMI Panel: Aluminum demand, production under pressure with tariffs on horizon

SMU Editor-In-Chief Michael Cowden joined Greg Wittbecker, senior consultant for Aluminum Market Update (AMU), a sister publication of SMU, and Gabriella Vagnini, AMU senior editor, for the discussion.

AMU, a new publication focused on the aluminum market, is expected to launch this spring.

Aluminum demand and production

While the stated goal of Trump’s executive orders is to help bolster domestic aluminum production, there are significant challenges to that, according to Wittbecker.

“The probability of seeing restarts of idled capacity and the construction of new primary aluminum capacity is pretty low,” he said.

One issue is the cost of energy – it takes a lot to run a smelter. It also costs a lot to restart an idled smelter, he noted.

AMU’s Gabriella Vagnini pointed out that in 2000 there were 23 smelters online in the US. Today, there are only four: two owned by Alcoa and two owned by Century Aluminum.

And she added this bit of data: For one metric ton of aluminum created in a smelter, it takes about 13 to 15 megawatts per hour per metric ton.

“That is about the equivalent to one year of one household’s energy,” Vagnini said. “We currently create 650,000 metric tons in the US.”

Wittbecker doesn’t see how a 10-25% increase in the dutiable value of products will spur demand.

“I think anybody who doesn’t think we’re going to lose demand is naive,” he said. “We need to really be spending a lot more time thinking about the knock-on effect of these duties on our domestic markets.

“The physical premium in the Midwest is going to be significantly tempered by the fact we’re going to see demand destruction in things like building and construction,” Wittbecker continued. “The automotive industry could take a big hit.”

He noted that some beverage companies have started looking into plastic to reduce their exposure to aluminum in beverage cans.

Price impact

As aluminum markets try to model different scenarios of how the tariffs could play out, how prices could change, and what products will be included, Wittbecker said it’s important to note one thing: none of that really matters.

“The market, at the end of the day, is going to price metal based on the marginal supply to the market,” he said.

“Another way I look at it is the market will price Midwest aluminum at the cost to the most disadvantaged importer,” Wittbecker said. “In other words, if you’re importing aluminum from India and they’re facing a 25% duty, the market is going to price to the 25% duty, regardless of whether or not Canada eventually gets a 10% duty treatment, whether it gets an exemption, or doesn’t get an exemption.”

Wittbecker noted that Argentina and Australia are currently exempted from the existing 10% Section 232 duty, but the market continues to price based on a 10% import duty.

“It doesn’t matter whether Canada, Argentina, or Australia have an exemption. The market doesn’t price based on cost; price is based on marginal supply,” Wittbecker said. “I think it’s really important for people to keep that in perspective.”

Scrap in play

One question going forward is whether tariffs could prompt more buyers to substitute recycled materials for primary aluminum.

The probability of that happening is “low to medium,” according to Wittbecker.

“The situation with scrap is very simple. You only have as much scrap as you have industrial production,” he explained. “If we don’t have significant industrial activity, there’s no more scrap to be bought. So the market’s ability to pivot away from primary metal because of cost is not very high unless you start talking about getting into some of the obsolete grades of scrap, and there’s other physical challenges with that.”

Vagnini noted that scrap makes up 70% to 80% of US aluminum production. However, there are melt losses to take into account as aluminum is processed repeatedly.

The US market has made significant investments in secondary production – since 2018, 31 facilities have either upgraded or started new production facilities for secondary processing. However, primary production is still needed. Vagnini said.

Steel trying to get ahead of tariffs

Discussing the latest in the steel markets, Michael Cowden noted some panic buying as companies try to get ahead of the tariffs. That’s driven up lead times across all flat-rolled steel products. Case in point: hot-rolled coil lead times were averaging about five and a half weeks as of last week.

“There’s variation by mill, obviously, but that’s at their highest point that we’ve seen since January 2024, and it’s up from four to four and a half weeks” at the beginning of the year, Cowden commented.

One question asked of steel buyers in SMU’s survey is whether mills are willing to negotiate lower prices.

Throughout 2024, most mills were willing to negotiate lower, Cowden said. Now, mills are announcing price increases, and very few are willing to negotiate lower prices.

“The last time we really saw something like that was in late 2023, stretching a little into early 2024, and that was around some of the dynamics related to the UAW strike,” he noted.

Editor’s note

If you’d like to pre-register for AMU, please contact Gabriella Vagnini at gabriella.vagnini@crugroup.com.