Aluminum prices fall as US imposes 10% tariff on Mexican imports to curb Chinese dumping

The Aluminum Monthly Metals Index (MMI) saw a 4.67% decline from June to July, reflecting ongoing volatility in the aluminum market.

Aluminum prices continued their downward trajectory, hitting their lowest levels since mid-April before stabilizing in mid-June.

Aluminum price trends and market outlook

Aluminum prices experienced a 6.86% drop from June to July before finding a bottom in mid-June. Prices then began to move sideways, although the overall trend remains biased towards the downside.

This decline is part of a broader trend influenced by various macroeconomic factors and trade policies affecting the aluminum market.

US tariffs on Mexican aluminum imports

In an effort to curb Chinese dumping, the White House announced a 10% tariff on certain Mexican aluminum imports on July 10. This tariff applies to aluminum products not “melted and poured” in the US, Mexico, or Canada.

The decision aims to close a loophole in the US-Mexico-Canada Agreement (USMCA) that allowed aluminum rerouted through Mexico to bypass US duties.

Despite the new tariffs, their impact on US aluminum prices is expected to be minimal. Data from the Department of Commerce indicates that monthly aluminum imports from Mexico have averaged only 1.29% of US aluminum imports since 2018.

This is significantly lower than China’s share, which accounts for roughly 3.9% of total US aluminum imports.

Preventing a potential surge in imports

US Trade Representative Katherine Tai described the tariff decision as “fixing a loophole” rather than addressing an immediate surge in aluminum imports from Mexico.

Estimates suggest that the new tariffs will affect only 6% of aluminum imports from Mexico. The primary goal appears to be preventing a potential increase in imports that could undermine US aluminum producers.

In recent years, duties on Chinese aluminum have led the country to explore alternative routes into the US market, with Mexico becoming a significant conduit.

Shipping container exports from China to Mexico increased by almost 60% year-over-year in January 2024, indicating China’s growing reliance on Mexico for rerouting exports.

Mexican tariffs and Chinese investments

Mexico has responded to the evolving trade dynamics with its own tariffs. In April, Mexico imposed 5-50% tariffs on numerous products from countries, including China, that do not have a Free Trade Agreement with Mexico.

These measures aim to protect Mexican industries from low-cost imports but also highlight the complexity of the trade relationship with China.

Despite these tariffs, Chinese investments in Mexican manufacturing and logistics have surged. According to the Financial Times, March saw the announcement of at least 41 Chinese projects destined for Mexico, the highest number since 2003.

This nearshoring trend illustrates the challenges of completely excluding China from North American supply chains amid ongoing trade tensions.

Chinese aluminum production and global impact

Chinese overcapacity remains a significant factor influencing global aluminum prices. Despite weak consumer spending and a struggling property sector, China continues to ramp up aluminum production.

Data from the International Aluminum Institute showed that Chinese primary aluminum output reached a new all-time high in May, accounting for nearly 60% of global production.

High production levels and subsidies for Chinese aluminum producers offer them a competitive advantage in the global market.

These subsidies enable Chinese manufacturers to maintain lower production costs, putting pressure on global aluminum prices.

Countries that do not impose tariffs on Chinese aluminum face increased competition, as Chinese aluminum can flood their markets at lower prices.

The aluminum market is navigating a complex landscape influenced by global trade policies, production dynamics, and geopolitical factors.

The 4.67% decline in the Aluminum Monthly Metals Index from June to July reflects the ongoing volatility and uncertainty in the market.

The recent US tariffs on Mexican aluminum imports aim to curb Chinese dumping efforts but are unlikely to have a significant impact on overall prices due to the small volume of imports affected.

Meanwhile, Chinese aluminum production continues to rise, exerting downward pressure on global prices.

The interplay between tariffs, trade routes, and production capacities underscores the challenges faced by aluminum producers and consumers in maintaining market stability.

As the market evolves, stakeholders will need to navigate these dynamics carefully to sustain profitability and competitive positioning.

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