Commodities 2021: Future of US quotas, tariff on Canadian aluminum remains uncertain

The US' imposition of quota thresholds in place of a 10% tariff on P1020 aluminum imports from Canada is set to be reevaluated in 2021, but differing outcomes appear to be viable under President-elect Joe Biden's incoming administration, according to industry participants.

Aluminium Association of Canada CEO Jean Simard said the aluminum industry is now "off the radar screen" for continued tariff or quota enforcement in 2021 due to declining P1020 imports from Canada.

"it is expected that this new administration will not go back on the most recent executive order to try to implement it," Simard told S&P Global Platts in an interview. "Given the rolling average [of P1020 imports from Canada] from September to December, even this existing administration will not go back because at the end of those four months, there was no problem. The price of metal is up, so everybody is happy."

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President Donald Trump said the US would consider reinstating a 10% tariff under Section 232 on Canadian P1020 if imports exceeded levels set for the final four months of the year, according to an executive order signed in October. No specific plan was put in place to take effect after December, and it was unclear whether the quotas would continue into 2021.

Regardless of import levels, Simard described Biden and his nominee for US Trade Representative, Katherine Tai, as "multilateralists" who would foster collaborative policies and not likely slap tariffs or quotas on trade allies.

"I certainly believe that the Biden administration will find all the logic to get Canada out of Section 232," Simard said. "It doesn't make any sense with their own political logic in terms of the continental value chain and rebuilding North America."

Open trade with Canada's low-carbon aluminum also supports the Biden administration's "green' agenda, according to Simard.

On the other side of the issue, Century Aluminum COO Jesse Gary said the continuation of aluminum trade enforcement on Canada, and the larger Section 232 aluminum tariff applied globally, is crucial for supporting domestic primary aluminum production.

"When you look towards the new administration and what their stated policies have been, one of the large areas of focus has been on bringing back US manufacturing jobs, and so you can see how the 232 program would seem to fit well within the Biden administration's goals," Gary said.

US-based Century has been able to bring capacity back online at its Hawesville, Kentucky, smelter since 2018, a move which Gary attributed to the aluminum tariff. The company is now prepared to increase utilization at its Mount Holly smelter in South Carolina as early as 2021.

Gary added that it was still too soon to predict what Biden will do with aluminum trade policy and the quota on Canada as he continues to build his administration.

Laurence Goldfarb, a US-based aluminum distributor, said Biden is unlikely to remove any aluminum tariffs or quotas to align his policies with the interests of labor unions.

"Biden is dependent on all of these democrat institutions, and the unions will not want him to lift it," Goldfarb said. "Whether it's Biden or Trump, I actually don't think Section 232 will come off."

Lower P1020 imports driven by market

Simard said US P1020 imports from Canada dropped in September and October in response to market recovery and increased demand for value-added aluminum products (VAP) following the initial wave of the coronavirus pandemic, rather than in response to pressure from the quotas.

"These thresholds have come into place at the same time as the market was pivoting back to value-added products from basic commodity ingot," Simard said. "While some might want to see the trend at the expense of P1020 as tariff-driven or threshold-driven, basically Canadian producers just responded to changes in market dynamics in favor of value-added products, mostly driven by the automotive recovery."

Aluminum smelters coordinated similar shifts in product mix between P1020 commodity-grade ingot and VAP, which are currently not subject to the Canada quota, during and after the 2008-09 financial crisis, Simard added.

US imports of P1020 aluminum from Canada fell to 79,646 mt in October, down from a 2020 high of 190,798 mt in June. Imports of Canadian P1020 hit a 2020 low of 66,101 mt in September, the first month the quota thresholds were in place.

September's P1020 imports came in below the month's quota threshold of 83,000 mt. October's levels just exceeded the 70,000 mt quota level for the month.

Conversely, imports of VAP under HTS code 760120 reached 84,875 mt in September and 79,272 mt in October, the respective second and third highest monthly levels of the year.

Tariff removal could bring consequences

Gary said the Section 232 aluminum tariffs have proven effective for growing US production and downstream demand, but times of difficulty for the domestic industry have tended to correspond with periods when the tariff was not fully enforced, such as the granting of the exemption for Canada.

"We need to continue to monitor the program, make sure it's effective and see if there can be policy tweaks necessary to ensure its continued effectiveness going forward," he said.

Goldfarb said the quotas have burdened US importers by making it more difficult to obtain P1020 aluminum from Canada, which is generally more cost effective and readily available than imports from overseas.

The quotas have also come at a time when US imports from overseas are being challenged by a global container shortage and the refusal of some foreign producers to sell aluminum to the US this year due to low premiums, he added.

However, the US industry could also suffer from the full removal of tariffs or quotas on Canadian aluminum, Goldfarb said.

"If we drop the US tariff or hard limit on Canada, that will actually reduce premiums here in the US and will tighten premiums over in Europe and Japan," Goldfarb said. "Then the Canadians will say it's not as good [to ship to the US]. Even though it's duty-free, it still may not be as advantageous than going to some other ports."