New York futures for gold, copper tumble on WSJ tariff report
Premiums for gold traded on the US-based Comex over the London spot market halved following the news report, to around $20 an ounce.
It’s going to be a busy year for aluminum traders as the global market navigates multiple geopolitical storms.
Topping the list of potential trade disruptions is the incoming Donald Trump administration and the threat of tariffs on US imports from Canada and Mexico, two of the country’s top suppliers of the light metal.
Next up is the prospect of the European Union (EU) banning imports of Russian aluminum as part of the bloc’s 16th sanctions package against Russia over its invasion of Ukraine.
That would accelerate Russia’s pivot towards Asia but China’s appetite for more aluminum is uncertain given the removal of the tax rebate on the country’s huge exports of semi-manufactured products.
Throw high alumina prices and falling London Metal Exchange (LME) aluminum stocks into the mix and it’s a recipe for market turbulence.
Will he, won’t he? Trump has repeatedly threatened to impose 25% tariffs on US aluminum imports from Canada and Mexico.
Canada is by some margin the largest supplier of primary metal to the United States, accounting for 79% of total imports in the first 11 months of 2024. Mexico is a major supplier of aluminum scrap and aluminum alloy.
The market is unconvinced that tariffs will be imposed, or at least for any extended period of time.
The CME Midwest premium contract, the best indicator of tariff risk, has risen since Trump won the US election in November but the gains have been muted relative to the notional impact of a 25% increase in cost to US consumers.
However, Trump has a history of disruption when it comes to Canadian aluminum. When he introduced 10% tariffs on aluminum imports in 2018, Canada was initially included, then exempted in 2019. It was included again in August 2020 before being exempted again a month later.
In his first administration Trump used aluminum tariffs as a blunt-force bargaining tool to force concessions across an array of trade disputes with his northern neighbour and there’s little reason to think Trump 2.0 is going to be any different.
The European Union is drawing up plans for a new round of sanctions on Russia next month as the war in Ukraine marks its three-year anniversary.
European policy-makers until now have held off on fully banning imports of Russian aluminum but that looks set to change this year.
EU aluminum users have been steadily weaning themselves off their dependency on primary Russian metal. The Russian share of the bloc’s total imports fell to 6% in the first 10 months of 2024 from 11% and 19% in 2023 and 2022 respectively.
But at 130,000 metric tons in the January-October period, Russian exports to Europe were not insignificant and any ban is likely to force a scramble for alternative suppliers.
Russia has steadily increased sales to Asian consumers over the last three years, particularly China.
China’s imports of Russian metal grew from 291,000 tons in 2021 to 1.2 million tons in 2023 and were on track to match that total in the first 11 months of 2024.
But can China continue absorbing so much metal?
The country ended tax rebates on exports of aluminum products such as bars, rods and foil at the start of December, potentially jeopardizing an annual flow of around five million tons to overseas markets.
That’s a worse-case scenario but there seems little doubt that semi-manufactured products exports will drop this year, reducing demand for imported primary metal.
Rusal, Russia’s dominant producer, likely won’t have as much metal to shift this year.
The company said in November it would cut output by 6% in response to soaring prices for alumina, the raw material for smelter production.
Some of the heat has come out of the alumina market since then as a severe squeeze on the Shanghai Futures Exchange (ShFE) contract dissipated over the end of the year.
But ShFE prices are still up significantly on the start of 2024 and Western alumina prices remain stuck at elevated levels.
Stocks of aluminum on the LME, meanwhile, have been steadily falling in recent months and open tonnage of 249,000 tons is at its lowest level since May 2024.
There’s a lot of smoke and mirrors around LME aluminum inventory movements with warehouse arbitrage as important a driver as supply-demand fundamentals.
But the heady combination of raw materials tightness, low inventory and trade uncertainty has spurred LME three-month aluminum prices. They hit a one-month high of $2,700 in Monday trading.
LME time-spreads are tightening. The benchmark cash-to-three-months period this week is trading at a contango of $10 per ton, compared with $40 a month ago.
Seemingly overlooked in the market’s calculations is the potential chilling effect on global consumption of a full trade war between the United States and everyone else.
But then there’s a lot of other moving parts to the aluminum price equation right now and most of them are on the supply side.
However, the one certainty is that what was once a fully globalized market is going to fracture further into distinct geographical parts.
Regional physical premiums may be where the real action lies in the months ahead. That was certainly the case under Trump 1.0.
(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)
(Editing by Jason Neely)
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