US imports of Russian, Chinese aluminium slump
US trade policies caused significant shifts in the composition of the country’s aluminium imports last year.
The stand-out in terms of primary metal was the sharp drop in imports from Russia, reflecting the imposition of sanctions on Oleg Deripaska and his Rusal companies.
China was hardest hit in the semi-manufactured products (“semis“) segment of the supply chain, with imports from the largest supplier to the US market in the previous three years almost halving in 2018.
Tariffs have undoubtedly played a part in that drop-off, but product-specific anti-dumping duties and a mutual loosening of supply-chain dependence were likely more powerful drivers.
Nor have tariffs done anything to halt either Russian or Chinese flows into international markets.
They have merely diverted them. Indeed tariffs may actually be working to stimulate Chinese exports.
Russian Imports Hit By Sanctions
Total US imports of primary aluminium fell by 18 per cent last year to 4.08 million tonnes, according to the US Census Bureau.
It was the lowest import level since 2015 and in part reflects rising US production after the imposition of “Section 232” tariffs of 10pc in March last year.
In part, though, the slide was due to the pre-emptive movement of metal into the United States in 2017, when imports hit a record 5m tonnes.
Much of that surge came from Russia, with imports running in excess of 700,000 tonnes in both 2016 and 2017 before slumping by 51pc to 347,000 tonnes in 2018.
The sanctions on Rusal, imposed in April last year and only lifted in January, evidently caused significant diversion of Russian metal into other regions.
The tariff impact on other suppliers of primary metal was limited.
Only two countries have been granted exemption from the aluminium tariffs.
Australian imports duly increased by 44pc last year, but those from Argentina actually fell by 34pc.
If any supplier can be said to have won from the post-tariffs market landscape, it is India. Imports last year totalled 184,000 tonnes. Five years ago they were just eight tonnes.
Canada remained the number one shipper of primary metal to its neighbour last year, accounting for an unchanged 51pc of all imports.
US buyers are currently paying 10pc more for their Canadian metal as a tariffs deal between the two countries remains elusive.
Imports of Chinese Products Drop
Canada also re-emerged as the top supplier of “semis” to the US market last year, to the tune of 434,000 tonnes of bar, rod, sheet, plate, foil and tube.
Imports from China, number one supplier in the 2015-2017 period, crashed by 48pc to 325,000 tonnes.
It’s questionable to what extent tariffs had anything to do with this sharp year-on-year drop.
The number of tariff exclusions granted to specific forms of Chinese product grows ever longer and as of December the volume of exclusions was not far off actual imports in 2017.
Rather, falling Chinese import penetration is more down to US anti-dumping measures against specific products such as foil.
Imports of Chinese foil fell 57pc last year to 66,900 tonnes after swingeing duties were imposed on some Chinese companies in February.
A similar anti-dumping decision on Chinese common alloy sheet in December can be expected to restrict further this year’s import flows.
Also at work is a less quantifiable unpicking of mutual supply dependency by Chinese sellers and US buyers.
This theme is playing out across the full spectrum of industrial commodities as both sides rethink their trading relationship under the shadow of broader trade-war threats. Lower Chinese imports didn’t dent US dependency on imports last year. Total “semis” imports were unchanged, up 0.3pc at just under 2m tonnes.
Filling the gap left by China’s retreat are countries such as Indonesia, Taiwan, South Korea and, particularly for plate, sheet and strip, Oman.
Saudi Arabia is also emerging as a major supplier of this form of “semi”, imports rising from zero a couple of years ago to 33,000 tonnes in 2018. This is down to the ramp-up of the Ma’aden Aluminium operations, which include a 380,000-tonne per year rolling mill.
Nor has US action against imports of Chinese “semis” in any way slowed China’s export flows.
Outbound shipments hit an all-time record of 5.3m tonnes last year and were up another 10pc in the first two months of this year, according to China’s customs department.
This, as ever with China, is a sign of weak domestic demand. National output has dropped by an annualised 732,000 tonnes so far this year, according to the International Aluminium Institute.
Smelters have shuttered capacity on a combination of structural reform, environmental regulation and weak margins.
Demand, however, appears to have fallen even harder, particularly from the automotive sector.
Moreover, US tariffs have worked counterintuitively to make Chinese aluminium “semis” more attractive, according to analysts at research and consultancy house Wood Mackenzie.
Higher prices in the United States are sucking in material from other suppliers across the rest of the world. That is leaving a supply gap, which Chinese products are now filling.
“We expect this dynamic to remain a feature of the market so long as the United States continues to restrict imports of Chinese foil and common alloy material,” Wood Mackenzie said. This ripple effect exposes the limitations of unilateral trade action.
The Donald Trump administration will no doubt hail as a success the drop in Chinese import penetration. But the country is still dependent on imports, just from a different list of suppliers.
Moreover, tariffs have not only failed to stem the flow of Chinese exports, the source of so much grief in the rest of the world. They may actually be incentivising it further.