Russian Aluminum Tariffs Mostly Good For Speculators, Not Much Else

Russia is being hit with a new punishment for its war with Ukraine.

On Monday, Bloomberg reported the U.S. government would put a 200% tariff on Russian aluminum imports. But, only speculators will benefit from this one. Russia is a minor supplier to the U.S.

Russia accounts for roughly 2.3% of aluminum imported to the United States. Canada, Mexico and China are the main sources.

At first blush, the biggest target here would be Rusal, the world’s leading aluminum producer, founded by Forbes-listed billionaire Oleg Deripaska. Thanks in large part to Rusal, Russia is the world’s second-largest aluminum exporter after Canada in 2021 dollars.

Deripaska, and his company, are no strangers to sanctions or pressures from Washington on his business. His Hong Kong-listed shares settled higher on Monday, but that was before this news broke so they will probably retreat on Tuesday. Vanguard and Fidelity mutual funds have small positions in Rusal stocks, which have not been banned, unlike the once famous Van Eck Russia exchange-traded fund, a Ukraine war casualty.

The Americas account for just around 7% of Rusal sales anyway, according to their first half 2022 financials. Most of Rusal’s sales to go the EU, followed by the Commonwealth of Independent States, and Asia.

Aluminum Speculators Will (Probably) Go Bonkers

Aluminum speculators will love this, though it will have little relevance on supply and demand. When Covid struck, aluminum futures rose quickly. When they started falling in 2022, Russia invaded Ukraine and they hit a record high. Prices started falling within a month of the peak, but have been climbing since September. Today’s news won’t help.

The automotive sector is the biggest user of aluminum.

Rusal said that its sales for 2023 have picked up after the London Metal Exchange (LME) decided not to ban Russian metal from being traded and stored in its system. As today’s news is not related to sanctions, it is unlikely the LME will change its mind.

The LME launched a discussion paper in October to review the Rusal issue and said on Nov. 11 that they would not ban Russian aluminum from the pricing market because so many people were still buying it, Reuters reported.

Supply has been in decline for some time.

Several European and U.S. aluminum smelters have either temporarily closed or are facing pricing pressures due to electricity costs in the EU. More than 1 million tons of combined EU and U.S. aluminum smelting capacity was either fully or partly closed during the first half of 2022.

The worldwide supply of primary aluminum was down around 0.6% year-on-year in the first half of 2022 to 33.6 million tonnes.

AlcoaAA
, a U.S. multinational, has three aluminum smelters in the U.S. but only two are operational. Rumor was it that the Intalco facility would be back to creating aluminum sheets this year, but that does not seem to be the case.

Alcoa did not reply to immediate requests for comments about today’s news.

Russia’s Tariffs: What Are They Like?

The U.S. is not going to be hurt by 200% tariffs on Russian aluminum.

Usually, when tariffs are that high, they are imposed on a particular company due to a Commerce Department investigation into dumping. In short, 200%+ tariffs are generally reserved for companies that are selling goods in the U.S. below cost (dumping), or are heavily subsidized and taking over domestic market share.

Last year, within weeks after war began in Ukraine, Congress removed Russia of its Permanent Normal Trade Relations (PNTR) with the U.S. This is granted to most nations, minus Cuba, Belarus and North Korea. Even Iran has Normal Trade Relations with the U.S.

Today, Russia has been shifted into what is known in trade customs parlance as “column 2” tariffs. This gives Russia an average port duty of 32%.

Regarding aluminum pricing pressure, it is worth remembering that Russia’s removal of PNTR, coupled with a Chinese speculator in Hong Kong, sent nickel prices to highs not seen since 2007. Nickel prices were falling fast, but are tracking commodities higher again and have risen 32% since July.

The U.S. has been toying with tariffs against aluminum (and steel) for years.

Trump imposed Section 232 trade tariffs on steel and aluminum globally. Recent trade agreements removed some of those duties, around 25%, for countries like Japan and the EU, imposing a quota system instead. Today, the U.S. is considering putting higher tariffs on Asian producers as punishment for climate change.

Geopolitics is an increasing part of market uncertainty. Markets should be used to sanctions and tariffs by now.

Last week, Customs captured a shipment of Chinese aluminum out of suspicion it was made with prison labor, Bloomberg reported. The action was part of the new Uyghur Forced Labor law, signed last year.

Hitting Russia, mainly Rusal, with a 200% price increase will take Russian aluminum out of the U.S. market.

In the best case, the tariffs should lead U.S. producers, like Alcoa, to invest in domestic manufacturing. That does not seem to be happening for aluminum as end-users continue to shop for the lowest price, pitting U.S. producers against the world.

The U.S. has the lowest tariffs of any country. Our default tariff rate averages 3.4%.