US metal importers building up stockpiles of aluminium ahead of new tariffs

US metal importers are building up stockpiles of aluminum ahead of the new 25% tariff on all steel and aluminium imports into the country, according to a report by the Financial Times.

Imports of aluminium, which is used in various products and sectors including construction, vehicles and consumer goods such as drink cans, rose to 580,000 tons in January according to the US Department of Commerce. This is the highest monthly rise since mid-2022, the FT says.

The biggest contribution to this rise, the FT reports, was from Canada, the largest foreign supplier of the metal to the US, along with significant rises from Bahrain, Australia and South Korea.

Canada is the largest supplier of aluminum and steel to the United States, with the US importing $9 billion and $6 billion respectively of the metals last year, according to analysis by Russell’s Trade Threat Observatory, as published in a new report.

“The US is heavily dependent on imports of primary aluminium to satisfy its demand needs from key sectors”, said Karen Norton, principal analyst of metals and mining for S&P Global Commodity Insights, speaking to the Wall Street Journal.

Aluminium future prices on the London Metal Exchange rose to their highest levels since mid-2024 at more than $2,700, though they remain far below their 2022 levels, the FT reported.

A Midwest Premium

The Wall Street Journal reported that US metal buyers are concerned about the rise in the so-called “Midwest Premium”, which is the surcharge that buyers must pay for the aluminium to be transported from the port to their facilities for it to be processed.

“It’s like you’re ordering a McDonald’s burger from Uber”, explains Andy Farida, a research analyst with Fastmarkets, speaking to the WSJ. “The burger is like that aluminium, and the Midwest premium is like the delivery fee that you pay Uber”.

The premium is currently pegged at 38.55 cents a pound according to Platt’s, who have calculated that there has been a 65% increase in the premium since the start of the year, with 30% of the increase occurring in the wake of the White House’s announcement of the tariffs.

In an interview with the Wall Street Journal, Rio Tinto Chief Executive, Jakob Stausholm said that the company has contingency plans in the event of US tariffs, which would see Canadian aluminium being redirected to Europe, forcing US buyers to look to China or the Middle East to source aluminum.

The quality of metal produced in the Middle East, the WSJ reports, such as the smelter in Ras Al Khair, Saudi Arabia, which is a partnership between Saudi producer Ma’aden and US company Alcoa, producesa product comparable to that of a Canadian producer. However, there are concerns regarding the environmental sustainability of many of these alternative smelters.

Transform or Not Transform?

The imposition of tariffs may invertedly impact the US power grid, because steel is an essential component in the manufacturing of transformers, according to the WSJ. Transformers are devices that step up or down voltages as electricity moves from power plants to homes and factories. New transformers are required when any new source of electricity, such as wind or solar, is connected to the grid.

There has been a reluctance among suppliers to invest large sums of capital to expand the production capacity of transformers because of the long break-even timelines, according to a report by Wood Mackenzie.

The National Renewable Energy Laboratory (NERL) estimates that 55% of in-service distribution transformer units are more than thirty-three years old and approaching their end of life. This capacity might need to increase between 160% to 260% by 2050 compared with 2021 levels, the NERL says.

Transformer prices have risen 70% to 100% since January 2020 because of inflationary rises in the price of raw materials such as electrical steel and copper, and tariffs may bring around 8% to 9% added increase in price, the WSJ reports.