[LONDON] Futures tracking aluminium and steel prices in the US surged after President Donald Trump said he will double tariffs on the metals this week.
Contracts linked to the prices that manufacturers pay to get aluminium delivered to the US Midwest jumped 54 per cent to the highest since 2013 on the Comex exchange in New York on Monday (Jun 2) – offering an early glimpse of the much higher costs for American factories, with import levies set to rise to 50 per cent from Wednesday.
Aluminium used in everything from beer cans to engine blocks and window frames was priced at a premium of 58 US cents a pound, or about US$1,280 a tonne, in the Midwest over benchmark London contracts. That suggests US buyers could end up paying about 50 per cent more than international competitors to get hold of the metal.
Trump hopes the increased levies will protect margins for domestic mills and spur investment in new production capacity, and shares of US steel and aluminium makers surged in after-hours trading after the announcement on Friday. But construction companies have warned that levies on steel and aluminium – which Trump had already raised from 10 to 25 per cent – will increase the cost of critical building materials.
Comex steel futures were up more than 8 per cent before paring some of the gains on Monday – and while both contracts are relatively illiquid – the moves indicate that the commercial burden of the tariffs will weigh most heavily on the US aluminium market.
More than 80 per cent of the aluminium used in the US is supplied via imports, while less than 20 per cent of the country’s steel is sourced from overseas, according to Morgan Stanley.
“We expect prices to rise – the US does not have enough domestic capacity of either,” analysts at Citigroup said. For aluminium in particular, the tariffs have “mostly just functioned as a tax on consumers thus far”.
Benchmark aluminium contracts on the London Metal Exchange (LME) traded 0.9 per cent higher to settle at US$2,466 a tonne at 5.50 pm local time. Copper was up 1.2 per cent in London and nearly 4 per cent higher on Comex, as analysts said the heightened levies make it more likely that Trump will follow through with plans to place tariffs on the metal.
“The market also appears to be pricing a higher likelihood of copper tariffs, with Comex outperforming LME,” Morgan Stanley analysts led by Amy Gower said, noting that US buyers have been front-loading imports ahead of potential tariffs. “For now, the Comex premium is likely to continue pulling material to the US, drawing down ex-US inventories and keeping ex-US markets tight.” BLOOMBERG
