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Investing.com -- Alcoa (NYSE:AA)’s President and CEO, William Oplinger, addressed the potential impact of tariffs on the aluminum industry at the BMO Capital Markets Global Metals, Mining, and Critical Minerals Conference today. He provided insights on the company’s operations in the US and Canada, and how the proposed tariffs, especially those in Canada, could affect the industry.
Oplinger explained that the US is currently short 4 million metric tons of aluminum annually, with 2.8 million metric tons of this shortfall imported from Canada, and the remaining 1.2 million metric tons imported from various parts of the world. He highlighted two potential tariff structures that could be implemented in March. The first is a 25% tariff on goods from Canada and Mexico, with a 10% tariff for energy and critical minerals. The second is a 25% tariff on steel and aluminum products from around the world.
Oplinger believes that these two tariffs would stack to a 35% net tariff for metal coming from Canada, which he views as a negative outcome for several reasons. First, a differential tariff between Canada and the rest of the world could motivate metal to be redirected from Canada to Europe, and metal from the Middle East and India to the US. Second, he believes it could have a negative impact on the US aluminum industry, potentially leading to the loss of 20,000 direct jobs and 80,000 indirect jobs in the US.
As for Alcoa, the company has approximately 900,000 tons of capacity in Canada, with around 700,000 tons imported into the US. The loss of the 10% Canadian exemption would not outweigh the benefit of the higher Midwest premium, resulting in a net negative impact for Alcoa. However, the exact financial impact will depend on metal price and what the Midwest premium goes to.
Oplinger also addressed the possibility of restarting idle capacity in the US if the tariffs are implemented. The company has around 50,000 to 55,000 tons of idle capacity, but the decision to restart would depend on the startup costs and the duration of the tariffs.
Lastly, Oplinger touched on the potential impact of the Russia-Ukraine conflict on the global aluminum market. He believes that the end of the war would not significantly affect global supply and demand, but could change trade flows, potentially putting downward pressure on Rotterdam and value-add premiums, and upward pressure on the rest of world aluminum pricing.
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