US ALUMINUM SERIES: Tariff talk raises uncertainty around US aluminum pricing

This report is part of a series on impactful trends in the US aluminum market based on S&P Global Commodity Insights pricing, news, and analytics.

The biggest issue facing the US aluminum market as business opens for 2025 is whether the US will reimpose or increase aluminum import tariffs on Canada, the country's largest supply source.

President-elect Donald Trump has vowed to hit Canada, Mexico, China and a slew of other countries with sweeping tariffs ranging from 10% to 100%, and specifically mentioned a possible 25% tariff on all imports from Canada, which would immediately raise the cost for the major source of US aluminum and lead to an increase in prevailing market premiums, in particular the Platts US Midwest Transaction price for P1020.

From January through November, the US imported 2.528 million mt of unwrought aluminum from Canada, accounting for 76% of imports. By comparison, the US produced only 672,659 mt out of total North American primary aluminum production of just under 4 million mt on an annualized basis in the same time period, according to the Aluminum Association.

Narrowing in on P1020, Canada accounted for 85% of US import share of imports during the 11-month period, or 1.583 million mt.

Looking back

To gauge where premiums could go with an increase in tariffs on Canada, it makes sense to look at what happened in 2018, when the US first imposed a 10% duty on all aluminum imports under Section 232 of an obscure law.

Similar to current conditions, US premiums started rising in January 2018 on a combination of winter trucking issues, tight scrap, and anticipation of a potential tariff. The premium rose from 9.5 cents/lb over LME cash Jan. 2, 2018, to 12.75 cents/lb Feb. 2, and then to 16.5 cents March 2, as the tariff became a real possibility.

Following official proclamation of the tariff, the Platts premium jumped to a three-year high of 20 cents/lb before easing back slightly to 19.25 cents/lb with announced exemptions.

The Platts premium has risen from 18.8 cents/lb at the end of 2024 to 23.8 cents/lb as of Jan. 14. Platts is part of S&P Global Commodity Insights.

As with today, futures trading on the Platts premium exceeded the spot level and rose ahead of the physical market price change. In 2018, when the spot level was 14 cents/lb, the CME's AUP contract traded at 15 cents/lb, or 7% higher.

While the Platts spot premium assessment hovered around 24 cents/lb in the first half of January, the AUP futures have been trading around 27.5 cents/lb for April-December, which is about 15.5% above spot levels. Fourth-quarter 2025 and Q1 2026 traded at 28.35 cents/lb and 28.4 cents/lb, respectively, on the CME.

The prevailing spot premium level reflects the fact the US needs a certain percentage of dutiable imports to meet demand, and the market rises to the level to cover duties and the replacement cost on those marginal imports. Currently, 92.7% of imports are exempt from the duty, and the duty level has been running around 12 cents/lb on a daily basis.

Market expects 25% tariff on Canada

Market sources and analysts are banking on Trump following through on imposing a tariff on Canadian imports, but there is uncertainty over whether Canada would keep its exemption from the Section 232 tariff, negating the full impact of a 25% duty. Some also expect a new tariff could be short-lived or a negotiating tactic.

"I take the president-elect at his word," said Ryan Modin, Hydro's head of North American government affairs, in a December interview with Commodity Insights. "I think that he will put a 25% tariff on Canadian aluminum unless they give him what he wants in return."

Oslo, Norway-based Norsk Hydro ASA has aluminum facilities around the world, with 28 facilities in 17 states across the US that include billet, extrusion, and precision tubing aluminum business units.

The tariff talk "is not noise," a trader said. "We don't know exactly what will happen. It's a volatile situation, but the trade war is real. Anyone who does not see that is not from planet Earth."

The trader said he was "not willing" to sell P1020 because there is "too much uncertainty," as the market is "waiting anxiously to see what will happen with the tariffs."

He said some consumers are short units because of the uncertainty, noting that a "very aggressive mating season left some customers with orders to still fill."

A producer said they see the premium "only accelerating if tariffs do come to fruition," rising up to 35-40 cents/lb.

"Everyone is focused on the tariff," agreed a second trader. He said while the "tariff talk is all speculation," the market is behaving similar to the last time in 2018 when a 10% tariff was imposed."

Since the premium has been rising since Trump first mentioned the possibility of tariffs, some see a potential price increase already factored into the market to some extent.

A third trader said while there is much more upside potential if tariffs are imposed, with premiums already up to 24 cents/lb, there now may be some downside risk if duties are not imposed.

But Hydro's Modin pointed to the deep trade relationship between Canada and the US, including the automotive supply chain linkage among New York, Ohio, Ontario, Quebec, and Michigan, as a reason to remain cautious about any potential tariffs.

"In the end, I believe the next administration and Congress will see US-Canada relationships as it relates to industrial policy as so important that the tariff won't go into effect," Modin said. "I believe that the next administration does not want to see inflation go up or the competitiveness of US manufacturing take a hit. Healthy Canadian trade is part of what the US needs for a secure supply chain, and I believe the next administration and the next Congress understand this."