The US government will reduce tariffs on imported aluminum to 25% from 50% for companies that agree to invest in new or expanded American production facilities. This incentive program aims to boost the domestic supply chain for primary aluminum, which is crucial for manufacturing military systems such as armored vehicles and spacecraft, as well as other strategic products.
To qualify for the reduced tariff rate, companies must submit onshoring plans to the Commerce Department outlining their commitment to build, expand, or refurbish a primary aluminum production facility in the US, with construction beginning by January 20, 2029. The Commerce Secretary will evaluate these plans, considering factors like commercial feasibility, project timelines, and anticipated annual production. Once approved, the companies can import a quantity of primary aluminum at half the Section 232 tariff rate, corresponding to their projected annual output from the new facility.
This move addresses a significant shortfall in US primary aluminum production, as domestic output currently struggles to meet demand. The US relies heavily on imports, particularly from Canada and the Middle East. Analysts, such as Alexander Hacking of Citigroup, noted that while the initiative aims to increase capacity, a substantial impact on the domestic supply in the near term is unlikely due to long construction timelines. For instance, the proposed smelter by Emirates Global Aluminium and Century Aluminum Co. in Oklahoma could potentially more than double current US primary aluminum output. However, challenges like securing affordable power remain a key concern for domestic expansion.
The previous 50% tariff, imposed by the Trump administration, had led to elevated costs for US manufacturers, with the US Midwest premium for aluminum significantly higher than global benchmarks. The new program seeks to incentivize domestic capacity without further increasing prices for consumers. LME aluminum prices rose 0.6% to $3,159 a metric ton, and Alcoa shares were up 1.2% following the announcement.
