Aluminum Prices Face Downward Pressure as Tariffs Influence Market Trends

Via Metal Miner

Overall, the Aluminum Monthly Metals Index (MMI) retraced, with a 4.67% decline from June to July. Aluminum prices continued to decline before finding a bottom in mid-June at their lowest level since mid-April. Overall, this reflected a 6.86% drop from June to July. Prices began to move sideways in mid-June, although the bias remains to the downside.

U.S. Applies 10% on Certain Mexican Aluminum Imports

In a bid to curb Chinese dumping efforts, the White House announced tariffs on certain Mexican aluminum imports on July 10. The 10% duty will apply to aluminum products not "melted and poured" in the U.S., Mexico, or Canada.

Back in 2018, Mexico responded to Section 232 tariffs on steel and aluminum by announcing retaliatory duties on U.S. products, including steel, pork, cheese, apples, and bourbon. The U.S. offered an exemption to Mexico in May 2019 as part of a broader agreement to replace the North American Free Trade Agreement (NAFTA) with the U.S.-Mexico-Canada Agreement (USMCA), which negated those duties. This left a back door for countries like China to circumvent U.S. duties by rerouting through Mexico.

For U.S. buyers, the latest tariffs appear unlikely to significantly impact aluminum prices. According to data from the Department of Commerce, monthly aluminum imports from Mexico averaged a mere 1.29% of U.S. aluminum imports since 2018. In fact, Mexico's share currently sits beneath China's, which accounts for roughly 3.9% of total aluminum imports into the U.S.

Tariffs Meant to Prevent Surge, But Threats Remain

U.S. Trade Representative Katherine Tai characterized the tariff decision as "fixing a loophole" left in the wake of the USMCA. As the volume of aluminum imports from Mexico appears small, with no sign of a recent increase, the intent is likely to prevent a potential surge of imports rather than address the existing problem. In fact, estimates suggest that the new tariffs would affect only 6% of aluminum imports from Mexico.

Over recent years, duties directed at China saw the country look for other routes into the U.S. Meanwhile, the latest tariffs do not appear to apply to many end-use products that may contain aluminum. China stepped up trade with Mexico in recent years, which helped support a steep increase in total exports from the latter nation.

This saw Mexico overtake China as the top exporter to the U.S. in 2023. Shipping container exports from China to Mexico rose almost 60% year over year in January 2024. In April, Mexico responded with 5-50% tariffs on numerous products from countries, including China, that have not negotiated a Free Trade Agreement. 

Mexican Tariffs Target China, But Chinese Investments in Mexico Soar

Although Mexican tariffs may help stem imports from China, Chinese manufacturing investments in Mexico have also skyrocketed. Such nearshoring efforts show the difficulty of completely shutting out China amid the escalating trade war. This trend began as early as 2018 following tariff efforts under the Trump administration and remains ongoing.

According to the Financial Times, March saw the announcement of "at least 41 Chinese manufacturing and logistics projects" destined for Mexico, the highest number since at least 2003. Cut aluminum expenses without compromising quality using the Monthly Metals Outlook report. Start with a free sample report snippet and subscribe for ongoing savings.

Chinese Primary Aluminum Output Hits New ATH Despite Tariffs

Chinese overcapacity remains a significant deflationary threat to markets. Despite bleak data related to consumer spending and the property sector in China, the country continues to demonstrate zero effort to curb capacity. In fact, data from the International Aluminum Institute showed that Chinese primary aluminum output hit a new all-time high in May. During the same month, China accounted for nearly 60% of global primary aluminum production, far outpacing other countries.

While tariffs may help mitigate the impact of Chinese supply in markets like the U.S., high production levels from China will continue to weigh on global aluminum prices. Chinese subsidies for industries like aluminum production offer producers and manufacturers that use Chinese-sourced aluminum a significant competitive advantage over their global counterparts. Meanwhile, those countries that do not impose tariffs continue to leave an open door for Chinese market influence.

By Nichole Bastin

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