ROI-The US needs more aluminium — and it needs it now: Andy Home

The U.S. "desperately" needs more aluminium, President Donald Trump told a virtual rally for Mike Mazzei, ​who has just won the Republican nomination for governor of Oklahoma. The state is home to a massive new smelter project, ​a joint venture between U.S. producer Century Aluminum and Emirates Global Aluminium (EGA). The project is backed ‌by $500 ​million in federal funds and is exactly the sort of headline-grabbing investment Trump was hoping for when he hiked aluminium import tariffs to 50% in June last year. The problem, though, is that even if construction at the Inola site begins on schedule by the end of this year, the plant will only begin producing hot metal in three years' time at the very earliest.

That is far too long a wait ‌for the Pentagon. WAR GAMES

The Department of Defense (DoD) ran a wargame in July last year to examine the country's aluminium resilience in the event of a large-scale conflict in 2027. Eighty participants were drawn from the aluminium supply chain, industry associations and several government departments.

Favoured policy options included the obvious ones, such as building new smelters, revamping old ones and recycling more. All of which would improve "overall aluminum industry outcomes", the authors of the Defense Logistics Agency's (DLA) report on the exercise noted. But, they cautioned, none would meet the DoD's "shorter-term aluminium and HPA requirements within two years."

HPA stands for high-purity ‌aluminium, and it's a particular cause for concern among Pentagon planners. PRECISION HIT

The U.S. defense sector accounts for only around 5% of domestic aluminium demand, but its share is "significantly higher" when it comes to HPA, which in alloy form is used in some of the Pentagon's ‌most essential systems. There's only one domestic HPA producer, leaving the Pentagon heavily dependent on imports, most of which come from the United Arab Emirates, according to the DLA report. Or at least they did until Iran bombed EGA's Al Taweelah smelter in March. The smelter is being repaired, with a quarter of its electrolytic cells now operational, EGA announced on Wednesday.

But U.S. imports from the UAE have dropped sharply since the attack and it will take time for the smelter to return to full capacity. Ironically, the DoD ran a second wargame with only government participants, examining disruption scenarios such as outages at Alcoa's smelter in New York and Arconic's HPA plant in Iowa.

The scenarios did not include ⁠a hostile attack ​on the largest overseas supplier of HPA to the U.S. military. The one short-term ⁠solution to come out of the wargame — stockpiling HPA and its alloys — just got a lot harder.

COMPETITION The Pentagon's HPA headache is part of a broader problem. Restoring U.S. aluminium production capacity is a long-term task. But the market needs more metal now.

The impact of tariffs on domestic production has been modest so far. Century has reactivated 50,000 ⁠tons of annual capacity at its Mount Holly smelter in South Carolina, returning the plant to full-capacity production.

Magnitude 7 Metals is reopening a 1970s-era smelter in Missouri after closing it in 2024. The first 75,000-ton-per-year potline is targeted for restart by the end of the year. There has been lots of investment in recycling ​capacity, a section of the supply chain that saw job growth exceed 20% between 2024 and 2026, according to the Aluminum Association. But the domestic supply gap remains large. U.S. import dependence was 60% last year, according to the U.S. Geological Survey.

The stress ⁠is manifest in the U.S. Midwest Premium, which is the surcharge over the London Metal Exchange price paid by U.S. buyers of physical metal. The CME spot premium is $2,467 per ton, which is some $850 per ton higher than the implied 50% tariff level. The loss of production in the Gulf has triggered a scramble for metal globally, and U.S. buyers find ⁠themselves ​in competition with both Europe and Asia for spare units.

ASK A FRIEND The Trump administration has just put another aluminium smelter incentive on the table in the form of a reduced 25% import tariff for anyone building, expanding or refurbishing domestic smelter capacity. Canada, on the other hand, won't get a similar anticipated reduction after trade talks broke down, leading to tariff escalation rather than de-escalation.

The country remains the largest supplier of primary aluminium to the U.S. market, although it has directed more volumes to Europe in recent months. But even if Canada could and wanted ⁠to export its entire production over the border, it still wouldn't be enough to fill the U.S. shortfall, according to analysts at Morgan Stanley. The marginal import ton would still be subject to a 50% tariff rate, and the Midwest premium would reflect that.

However, Canada ⁠does offer one short-term solution to U.S. military planners' aluminium headache, as the ⁠DLA report points out. If the U.S. needed to surge aluminium production during a large-scale conflict, a memorandum of understanding between the two countries includes a special arrangement under which Canada would prioritize U.S. defense purchases.

The Pentagon may have to ask nicely, though. (The opinions expressed here are those of Andy Home, a columnist for Reuters.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ‌ROI on LinkedIn, and X. And listen to the ‌Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance ​seven days a week.

(Writing by Andy Home; Editing by Marguerita Choy)