ROI-US-Canada trade deal would hurt European aluminium buyers: Andy Home

A reduction in US tariffs on Canadian aluminium is just ​a question of "when, not if," according to Jorge Vazquez, founder and managing director of US consultancy Harbor Aluminum, speaking ​at last month's LME Seminar. That was a bold call at the time, but ‌the ​two countries now appear close to a trade deal. Even US President Donald Trump says so, although Canadian negotiators are taking a more cautious line in public, at least.

The aluminium market is equally wary, having got burnt in August, when a breakthrough in the trade dispute seemed equally close. The US Midwest premium, which is the tariff-laden cost of metal over the ‌London Metal Exchange (LME) basis price, has softened since May but remains elevated at $1.093 per lb, equivalent to $2,409 per metric ton.

A cut in the tariff on Canadian metal from 50% to 25%, which seems to be the base-case expectation, would see that premium collapse. That would be good news for American consumers, but it could be very bad news for European aluminium buyers.

TARIFF HIT US imports of Canadian primary aluminium have fallen sharply since tariffs were doubled to 50% in June last year.

Cross-border flows dropped by 26% to ‌2.03 million metric tons last year, and they have fallen a further 14% so far in 2026, according to the World Bureau of Metal Statistics (WBMS), which collects official customs data. Canada is still the largest single supplier to the US market, ‌which remains heavily dependent on imports despite the reactivation of idled capacity at Century Aluminum's Mt. Holly plant in South Carolina and at Magnitude 7 Metals' New Madrid smelter in Missouri.

A proposed new smelter in Oklahoma is still several years away from first production, even assuming the project can overcome local opposition and secure a competitive power deal. In the interim, the US has been compensating for the reduction in Canadian imports by diversifying its supplier base, although total primary metal imports were still down by 10% year-on-year in the January to August period.

CANADA SHIPS TO EUROPE Canada has been exporting more aluminium ⁠to Europe since ​the increase in US tariffs.

Shipments to the Netherlands surged from 64,800 ⁠tons in 2024 to 372,000 tons last year, and they rose by another 98% year-on-year to 215,000 tons in January to August this year, according to the WBMS. Sizeable volumes have also gone to Italy, Poland and Greece over the last 12 months.

Europe desperately needs this metal. Like the US, the continent ⁠relies heavily on imports but has taken three significant supply hits in the last couple of years.

Imports of Russian metal, traditionally a major source for European buyers, are being totally phased out in response to Russia's full-scale invasion of Ukraine. South32's decision to idle its Mozambique ​smelter effective March this year has removed another major supplier to the European market.

The Iran war and the resulting disruption to flows of Gulf aluminium have exacerbated the tightness in the European market. Physical premiums in Europe reflect ⁠the accumulation of supply woes. The CME contract for duty-unpaid aluminium is trading at $438 per ton over the LME basis price, while that for duty-paid metal is now at $574 per ton.

Both are below their May peaks, when the Gulf supply shock was still reverberating through the global supply chain. But by any historical ⁠yardstick ​these are high premiums, particularly considering the currently subdued demand dynamic. Canadian exports have helped ease the pain.

For how long remains to be seen. ALL CHANGE (AGAIN)

US tariffs have changed the global aluminium premium landscape and they could do so again, depending on the outcome of US-Canadian negotiations. Much also hangs on the broader tariff picture in the US after the Democrats' landslide victory in the midterm elections.

With the cost of living topping voters' grievances, the Trump administration may be tempted to reverse course ⁠on its default tariff position. Interestingly, Harbor's Vazquez not only predicted a reduction in Canadian metal tariffs but suggested other "allied" countries might receive similar preferential treatment.

If that were to include, for example, Gulf suppliers such as the United Arab Emirates and ⁠Qatar, Europe would find itself at a growing disadvantage in its ⁠competition with the US for available units. European premiums would need to rise significantly to attract more aluminium, causing much potential pain for the continent's downstream processing sector and, ultimately, its consumers.

(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)