Imports of primary aluminum into Brazil will be temporarily subject to a 6% import tariff over the all-in price as the 173,000 mt quota for tax-free orders will no longer be available.
Market participants said Tuesday that the import licenses with the tariff exemption are no longer being issued.
The country's foreign trade ministry, or Mdic, said in an email that "the quota is almost finished," without elaborating on the available volume.
Since several shipments are expected to arrive in the coming weeks to meet term contracts and spot orders placed in April, the quota can be considered unavailable for all new orders -- and for most of the previously placed orders as well.
There were intense concerns about the quota's sufficiency among market participants since it was reduced in February to the 173,000 mt limit from 240,000 mt for the August 2016-August 2017 period.
The quota was expected to be renewed for the August 2017-August 2018 period, but now it's unclear whether it can be anticipated, and what the tax-free volume could be.
Some importers delayed term contract deliveries recently, fearing that they could be caught by surprise with the end of the quota when vessels arrived.
According to official figures from Mdic, primary aluminum imports totaled 148,980 mt in the August 2016-April period. The data also showed that Brazil has been importing around 20,000 mt/month in the past six months.
IMPACT ON PREMIUMS
The imposition of the 6% tariff over the all-in price turns primary aluminum imports uncompetitive in Brazil.
Considering Tuesday's London Metal Exchange aluminum settlement of $1,915/mt plus Platts' P1020 CIF Brazil weekly premium assessment of $165/mt, the all-in value would be $2,080/mt on a CIF basis.
Adding the 6% tariff, the value turns into $2,204.80/mt, which would also need another $70-$90/mt for unloading, port fees and trucking, normalizing to $2,274.80-$2,294.80/mt on a delivered-Southeast basis.
Platts' domestic P1020 delivered Southeast premium of $252.5/mt plus the same LME settlement turns into a final cost of only $2,167/mt -- meaning that the domestic supply became at least $107.80/mt cheaper than imports due to the end of the quota.
Domestic producers, however, are considered unable to meet the demand if the interest for the 20,000 mt/month that was being imported turns to domestic supply.
"There are two scenarios -- either domestic producers will take the demand and boom their premiums (which is not likely because they don't have that much available capacity) or an extra volume will be made available for tax-free imports," said a trader who believes there may be a new import quota "as soon as next week."
A meeting is scheduled for Thursday at the Brazilian Aluminum Association headquarters in Sao Paulo to discuss the issue. Unconfirmed reports indicate that there is already a verbal agreement between key market participants to request a new import quota from the Brazilian government.
In case it doesn't come true, some views indicate Argentinian smelter Aluar could benefit from the situation since it can sell in Brazil free of the 6% tariff independently of the quota because of the Mercosur agreement.
A second trader who also thinks that it would make sense for Aluar to raise its profile in Brazil, but pointed out that "probably they are also unable to deliver something like 20,000 mt."
Other views are even more skeptical because of the transit time from Argentina to Brazil's main ports in the Southeast.
