June 15, 2020 / 1:04 PM / 20 days ago

Canadian exemption from U.S. aluminium import levy under scrutiny

LONDON (Reuters) - The aluminium market is pricing in rising prospects of the United States replacing Canada’s exemption from import tariffs with quotas, aiming to boost the survival chances of local producers.

Some U.S. aluminium industry sources expect the exemption to be lifted completely, which would slash Canadian imports and trigger a large price rise, anchoring the viability of high-cost U.S. smelters such as those owned by Century Aluminium (CENX.O) and Magnitude 7 Metals.

(GRAPHIC - LME aluminium prices: here.PNG)

U.S. aluminium prices are based on the physical market premium AUPc1 plus the benchmark price CMCU3 on the London Metal Exchange, currently around $1,570 a tonne.

A flood of aluminium from Canada and falling demand recently due to coronavirus lockdowns had pushed the U.S. premium below $180 a tonne from around $400 seen for much of last year. It is expected to rise towards $270 a tonne by January.

(GRAPHIC - U.S. aluminium premiums: here.PNG)

“The market is trying to (price in) the odds of the U.S. giving Canada a hard quota,” said CRU analyst Gregory Wittbecker, adding that a quota based on a three-year average of Canada’s aluminium exports to the United States was possible.

“If there is no exemption then all bets are off. You could see the premium back at 20 cents a lb ($440 a tonne) or higher.”

Since May last year, Canada has been exempt from Section 232 import tariffs of 10% on aluminium, a key material for local auto makers, drinks firms and the U.S. defence industry.

“Canada’s exemption completely evaporated the intention of Section 232, which was to help remaining U.S. smelters survive,” said Jorge Vasquez, founder of consultancy Harbor Aluminum.

U.S. smelters last year produced more than 1.1 million tonnes of primary aluminium, according to the American Primary Aluminium Association, more than 20% of U.S. consumption.

(GRAPHIC - Canada' s share of U.S. aluminium consumption: here.PNG)

Without changes to Canada’s exemption, U.S. smelters are likely to close, which would fuel a rise in premiums.

Operators of Canadian smelters, including London-listed Rio Tinto (RIO.L) (RIO.AX) and U.S.-based Alcoa (AA.N), have increased their share of the U.S. aluminium market.

Data compiled by Harbor Aluminum shows Canada’s primary aluminium exports to the United States between January and April this year at nearly 550,000 tonnes, more than double the number from the same period last year.

(GRAPHIC - Canadian exports of aluminium to the United States: here.PNG)

Reporting by Pratima Desai; Editing by Jan Harvey

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