In the current volatile global metal trade situation, the North American aluminum market is mired in an unprecedented turbulence, and a move by Rio Tinto, the world’s largest aluminum producer, is like a heavy bomb, further pushing this crisis to a climax.

Rio Tinto Surcharge: A Catalyst for Market Tension

Recently, according to media reports on Tuesday, Rio Tinto Group has imposed a surcharge on its aluminum products sold to the United States, citing low inventory and demand beginning to exceed available supply. This news instantly caused a thousand waves in the North American aluminum market. It should be noted that the United States currently relies heavily on foreign aluminum supply, with Canada as its largest supplier, accounting for over 50% of its imports. Rio Tinto’s move is undoubtedly adding fuel to the already extremely tense US aluminum market.

The surcharge imposed by Rio Tinto is another increase on the existing fee basis. The US aluminum price already includes the “Midwest premium”, which is an additional cost higher than the London benchmark price, covering transportation, warehousing, insurance, and financing expenses. And this new surcharge adds an additional 1 to 3 cents on top of the Midwest premium. Although the amount may seem small, the impact is actually far-reaching. According to informed sources, the additional fee plus Midwest premium adds an extra $2006 per ton to the raw material price of approximately $2830, resulting in a total premium of over 70%, which is even higher than the 50% import tariff set by Trump. Jean Simard, the head of the Canadian Aluminum Association, pointed out that the 50% aluminum tariff set by the US government significantly increases the risk of holding aluminum inventory in the US. The tariff changes directly affect the economics of spot holding financing transactions, requiring buyers with contract payment terms exceeding 30 days to pay an excess price to offset higher financing costs for producers.

Prelude to Tariffs: The Beginning of Market Imbalance

Since the beginning of this year, the Trump administration’s adjustment of aluminum tariffs has become the catalyst for the imbalance in the North American aluminum market. In February, Trump set the aluminum tariff at 25%, and in June raised it to 50%, claiming it was aimed at protecting American industries. This measure made Canadian aluminum too expensive for American metal processors and consumers, and the market quickly shifted towards consuming domestic inventory and exchange warehouse inventory.

The aluminum inventory situation in the warehouses of the London Metal Exchange in the United States is the best proof. Its warehouse in the United States is out of aluminum inventory, and the last 125 tons were taken away in October. Exchange inventory, as the last guarantee of physical supply, is now running out of ammunition and food. The largest aluminum producer in the United States, Alcoa, also stated during its third quarter earnings conference call that domestic inventory is only sufficient for 35 days of consumption, a level that typically triggers price increases.

At the same time, Quebec’s aluminum producers are shipping more metal to Europe due to losses in the US market. Quebec accounts for about 90% of Canada’s aluminum production capacity and is geographically close to the United States. Originally a natural buyer in the US market, it has now changed direction due to tariff policies, further exacerbating the supply shortage in the US market.

Specific clause: The ‘mastermind behind the scenes’ who exacerbates market chaos

The specific provisions in the US presidential announcement have further exacerbated the tense situation in the North American aluminum market. This clause stipulates that if the metal is smelted and cast in the United States, imported products will be exempt from aluminum tariffs. This regulation seems to be aimed at encouraging the development of the domestic aluminum industry in the United States, but in fact it has created more demand for American made aluminum from overseas manufacturers. Overseas manufacturers use these aluminum manufactured products and ship them tax-free to the United States, further squeezing the market space for domestic aluminum products in the United States and exacerbating the supply-demand imbalance in the US aluminum market.

Global perspective: North America is not the only ‘battlefield’

From a global perspective, the tension in the North American aluminum market is not an isolated phenomenon. Europe, which is also a net importer of aluminum, has seen a decrease of about 5% in regional premiums compared to a year ago. However, in recent weeks, due to supply disruptions and the EU’s implementation of import fees based on greenhouse gas emissions from production processes next year, premiums have rebounded. Analysts predict that the current global context will drive the global benchmark price to break through $3000 per ton.

Michael Widmer, head of metal research at Bank of America, said that if the US wants to attract aluminum supply, it must pay higher prices because the US is not the only market in short supply. This viewpoint sharply points out the current difficulties faced by the North American aluminum market. Against the backdrop of overall tight global aluminum supply, the high tariff policy of the United States not only failed to effectively protect domestic industries, but also plunged itself into a deeper supply crisis.

Future outlook: Where does the market go from here

The incident of Rio Tinto imposing surcharges undoubtedly sounded the alarm for the North American aluminum market. Consumers and traders describe the current market as almost dysfunctional, and Rio Tinto’s surcharge is the clearest signal of how Trump’s tariffs are deeply damaging the market structure. The delivery price of aluminum in the United States hit a historic high last week, and the future price trend is still full of uncertainty.

For the US government, whether to continue to adhere to high tariff policies and further exacerbate market chaos, or to re-examine policies and seek cooperation and compromise with trading partners, has become a difficult choice before us. For participants in the global aluminum market, how to adjust strategies to deal with supply shortages and price fluctuations in this turmoil will also be a severe test. How will this’ storm ‘in the North American aluminum market evolve, and what changes will occur in the global aluminum market landscape? It is worth our continued attention.