The imposition of 10 per cent tariff on import of aluminium into the USA would not have any major impact on the current dynamics of the global aluminium industry, according to rating agency IcraBSE -0.66 %.
This is primarily due to the fact that the global market is currently in a deficit, following key regulatory steps taken by the Chinese Government to curb production from its polluting and “illegal” aluminium smelters. Hence, the world, outside the USA, can absorb the aluminium metal, which is currently being exported from the countries that are going to be impacted by the tariff. The expectation, however, does not take into account the impact of retaliatory trade measure, if any that may be taken by affected countries against the USA.
Says Jayanta Roy, senior vice president and group head, corporate sector ratings ICRA, “Production cutbacks in China resulted in a deficit of 1.4 MMT of aluminium in the global market in CY2017, which is likely to widen further to over 2.5 MMT in CY2018. Consequently, the trade restrictions would only alter the global aluminium material supply chain as there are markets around the world which can absorb the excess metal if there is any reduction in import in the USA.”
As per the data released by the Aluminium Association in the Section 232 investigation report, the USA was a net importer of 3.96 metric tonnes of primary aluminium in CY2016. Out of this, 2.30 MMT was imported from Canada, and the balance 1.66 MMT originated from countries like Russia, Qatar, the United Arab Emirates and Argentina, on which the revised tariffs would be applicable. However, in ICRA’s opinion, this can be absorbed in rest of the world, going forward, because of an anticipated deficit in the primary aluminium market in CY2018.
In CY2017, the global aluminium demand-supply balance was hit by new regulations in China that resulted in a shutdown of 4.5 MMT of operating capacities in the country, and the scrapping of additional 6 MMT of upcoming capacities. While capacities were curtailed, resulting in muted global aluminium production growth, aluminium consumption expanded by ~6.6 per cent in CY2017 leading to a 1.4 MMT deficit. ICRA expects 3.5 MMT of new aluminium smelters to be commissioned mostly in China in this calendar year. Nevertheless, the global aluminium deficit is likely to widen because of an expected healthy rate of growth in consumption in CY2018. Consequently, the global market is unlikely to face major challenges in absorbing any diversion of the primary metal from the USA.
As on date, there is 1 MMT of idle aluminium capacities in the USA belonging to Alcoa Inc, Century Aluminium Co and ARG International AG. Even if these smelters are able to restart and achieve 100 per cent utilisation rate within a short time span, consumers in the USA, including downstream aluminium product manufacturers, would still have to rely on imported primary metal to an extent, since the incremental supply would fall short of the current level of imports from affected countries.
Post announcement of the higher tariffs by the USA Government, aluminium premiums have risen sharply by 21 per cent in the USA and by 10 per cent in Asia, reflecting the expectation of the commodity market that the above move is unlikely to have any significantly adverse impact on the global aluminium industry.
