[Reuters Analysis] Bad news for American beer drinkers as aluminium tariffs kick in: Andy Home

LONDON, March 12 (Reuters) - First some good news for U.S. aluminium buyers. President Donald Trump has backed off from his threat to hit imports of Canadian metal with a huge 50% tariff.

Now for the bad news. As of today they will be paying a 25% import tariff, not just for Canadian metal but for all aluminium products from all countries.

Market pricing has already shifted to reflect the Trump administration's doubling-down on tariffs as a way of reviving domestic smelting capacity.

The CME Midwest premium AUPc1, reflecting the cost of unwrought aluminium delivered to a U.S. fabricator over and above the international London Metal Exchange basis price, is trading at record highs.

The high premium will flow down the aluminium product chain until it hits the last-stage user, whether it be Ford Motor F.N, Lockheed Martin LMT.N or one of the country's many independent brewers.

That's how tariffs have worked to date and things won't change while the United States remains so dependent on imports.

TARIFF HANGOVER

Trump's original 2018 tariffs on aluminium were set at 10% and within a year the Beer Institute, which represents the nearly 8,000 brewers in the United States, estimated they had already cost the industry an extra $250 million.

A report by consultancy Harbor Aluminum found that $50 million had gone to the U.S. Treasury, $27 million to domestic smelters and $173 million to the fabricators who convert metal to aluminium sheet for beer cans.

What really irked the Beer Institute was that the import tariff was being passed through even though U.S. cansheet typically contains around 70% recycled metal sourced domestically.

But that's how tariffs tend to work.

Just ask European aluminium buyers. The European Union also imposes import tariffs ranging from 3% on primary aluminium to 6% on some alloys.

Researchers from the LUISS University of Rome studied the impact on consumers and in a 2019 paper found that even though duty-exempt metal accounted for around half of all European Union imports, everyone ended up paying 6% anyway.

Producers are incentivised to "align their prices to the highest possible level - that is, the duty-paid price," the researchers wrote.

The Beer Institute's follow-on research in 2022 confirmed this harsh economic reality, finding that even with exemptions for key suppliers such as Canada, beer makers were still paying the full import tariff for their can metal. The cost at that stage had risen to $1.4 billion.

IMPORT DEPENDENCY

Harbor Aluminum's finding that the main beneficiaries of tariffs to date have been first-stage processors reflects the imbalanced nature of the domestic U.S. supply chain.

The country has a large base of semi-manufactured product makers but only four operating primary metal smelters to supply them.

The aluminium sector directly employs more than 164,000 workers but only 4,000 are engaged in upstream metal production, according to the U.S. Aluminum Association.

Those four smelters produced 670,000 metric tons of metal in 2024, compared with U.S. consumption of around 4.9 million tons.

Imports of primary metal totaled almost 4.0 million tons, of which 70% came from Canadian smelters.

It's hard to see how that dynamic is going to change any time soon. Even if all the currently idled smelting capacity of around one million tons per year returned to production - a big "if" given the age and cost structure of the four mothballed plants - it would still leave a big import dependency gap.

Century Aluminum's CENX.O proposed new smelter is years away and the company hasn't yet found a source of competitively priced power to feed the plant's electrolysis process.

There is much more potential to lift domestic production from domestic scrap but as long as even one ton of extra imported metal is needed to meet domestic consumption, you can be sure that the tariffs will continue to determine the end price for American buyers.

TRADING UNCERTAINTY

Moreover, as the markets learned on Tuesday, Trump is quite capable of raising tariffs on a presidential whim.

The changeable tariff rhetoric is causing volatility in the CME U.S. premium, which briefly jumped to almost $1,000 per ton over the LME price on the threat of 50% tariffs on Canadian metal before retreating on news of the truce with Ontario Premier Doug Ford.

But it may also be about to generate a major realignment of global trading patterns.

Previous spikes in the U.S. aluminium premium have pulled European premiums higher. This is logical given that Europe, which is also dependent on primary metal imports, must compete for spare units in the global market-place.

Not this time, though. Even as the U.S. premium has surged to all-time highs, European premiums have been falling.

This is counter-intuitive, particularly since European consumers are set to lose Russian supply over the next year as part of the bloc's latest sanctions package. If anything, the European premium should be even more sensitive to what is happening in the North American market.

The divergence suggests that some suppliers to the United States are already looking to avoid Trump's tariff tantrums by re-directing sales to Europe.

If so, it will be good news for European beer drinkers, who may raise an aluminium can to their less fortunate American counterparts.

Global aluminium premiums diverge after US tariffs kick in