Aluminum's Eventful Quarter
Supply disruptions and trade issues have boosted pricing across the supply chain, but stocks remain overvalued.
The aluminum industry saw one of its most eventful periods in recent memory in the first quarter, with supply disruptions and trade frictions significantly raising the prices of aluminum and alumina. In turn, higher prices have raised near-term profits for the companies under our coverage. We expect prices to remain elevated for the remainder of 2018 before ultimately settling at a midcycle level just below $1,500 per metric ton in real terms.
Among the events contributing to aluminum supply chain disruptions, aluminum tariffs proposed by the United States had perhaps the greatest impact. The measure enacted by the Trump administration in March included a 10% tariff on aluminum imports, with several notable trade partners exempted. Most of these exemptions are temporary but could become permanent, pending further trade negotiations. Recent reports indicate that the European Union is set to impose a 25% tariff on U.S. aluminum and steel imports if it fails to receive continued exemptions beyond the current June 1 deadline. This measure is unlikely to have much impact, given that the EU imports very little aluminum from the U.S. Nevertheless, it is a reminder that the specter of a global trade war remains.
Andrew Lane does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.