The Trump administration announced earlier this year in March that the US would impose 10% tariffs on Aluminum to bring back domestic US production. Perversely, these sanctions have led to a big increase of the price of Alumina, a key ingredient of Aluminum production. Sanctions on the Russian company Rusal have been the main culprit. It produces 6% of the world’s Alumina and has forced producers trying to find other suppliers. WSJ writes;
Alumina supplies “are really stretched globally, smelters are scraping the bottom of the silos for stocks,” said Ami Shivkar, analyst at consultancy Wood Mackenzie.
Alumina prices have soared over 100% since 2016 from an average of $254/t to around $600/t today. In addition, production cuts due to emissions and labor disputes from different producers have affected the supply. Forbes notes;
The first supply setback was the loss of half the annual output from the world’s biggest alumina refinery, Norsk Hydro’s Alunorte refinery in Brazil, after a government-ordered cutback because of unauthorized emission of untreated water.
Supply is also being crimped by a labor dispute at three refineries in Western Australia operated by Alumina and Alcoa through a joint venture.
Prices of Aluminum have not followed the Alumina price increases. This has been severely negative for various Aluminum producers such as Alcoa (AA), Century Aluminum (CENX US) and Norsk Hydro (NHY NO). WSJ cites analysts’ comments;
New York brokerage Berenberg Capital Markets last week initiated coverage of Century with a “sell” rating, citing high alumina prices. “The drag from alumina is higher than the benefit from tariffs at this point,” said Berenberg analyst Paretosh Misra
The US producers Alcoa and Century Aluminum are both down over 33% since highs earlier this year.Meanwhile the Norwegian producer Norsk Hydro, has performed better and is down “only” 20%. In contrast, Alumina producer Alumina (AWC AU) is up almost 15% for the year.
If US sanctions continue, the end result might be that production and profits for domestic US producers continues to decline. This would be against the intended purposes of the sanctions.