Last week, a few leading downstream aluminium producers urged the Trump administration to remove the tariffs as they could not stop Chinese overcapacity.  Top industry executives including JW Aluminum CEO Lee McCarter said that despite the tariffs, it’s still cheaper for U.S. manufacturers to buy imported aluminium than buying domestically. The tariffs, according to them have only made domestic products more expensive and uncompetitive.

They have also opposed the import quota system proposed by the government for Canada and Mexico in lieu of tariffs and said that that will create a deficit for aluminium for US downstream buyers.

“Unfortunately, the tariffs have done nothing so far to stop China’s trade-distorting behaviour in the market,” said Jean-Marc Germain, CEO of Constellium, which makes rolled aluminium at 24 sites in North America, Europe and Asia.

“What it does is increase the cost of our products,” he added.

He indicated the six per cent growth in aluminium production in China and the following growth in export despite the implementation of tariffs.

As shown by a study by a Paris-based Organization for Economic Cooperation and Development, government subsidies to the aluminium industry in China were worth US$70 billion over the last five years.  Another study by George Mason University shows U.S. importers have obtained tariff waivers on 86 per cent of the products indicating the futility of the tariffs.

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Base metals prices have recovered significantly since January’s lows after news that the US and China are inching closer to signing a trade deal. According to reports, both sides will lower or remove tariffs upon signing a trade agreement, but it is still unclear whether US Section 232 tariffs on steel and aluminium imports from China will stay in place. Beijing is also expected to grant foreign investors better market access in certain fields, while foreign (US) intellectual property would be awarded more protection. Regardless of the final agreement, it is evident that both sides will be able to claim a great victory and the consensus opinion among analysts is that the outcome will spur on metal prices.

This expectation explains the pressure base metals prices came under in mid-March on news that the planned meeting between Donald Trump and Xi Jinping for the signing of a trade deal will take place in late April, at the earliest. Shortly after that, base metals prices rose again with increasing backwardation after Chinese Premier Li Keqiang announced Beijing will roll out on April 1^st a planned cut in value-added tax (VAT) from 16% to 13% for manufacturing industries (instead of May 1, as previously expected). This shows that metal prices are intertwined with developments in China.

But all of these developments didn’t help much the aluminium price: the cash LME price has been trading below US$ 1900/tonne since December 24, 2018, averaging US$ 1853 /t in the first two months of 2019. The aluminium price (cash, LME) rose on March 19 to over US$ 1900 /tonne (US$ 1907.5/t) for the first time since December 21, on news of a cyber-attack on Norsk Hydro.

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