European aluminum market participants do not expect any significant changes from the US decision to temporarily exempt the European Union from proposed aluminum import tariffs, they told S&P Global Platts Friday, as uncertainty will remain over the longer-term outlook.
The US government confirmed Thursday its 25% import tariff on steel and 10% on aluminum would be "paused" until May 1 for steel and aluminum products from the EU, South Korea, Brazil and Australia as well as its previously announced exemptions for the country's North American Free Trade Agreement partners -- Canada and Mexico.
The tariffs came into effect Friday.
However, European participants do not expect any significant change from the temporary EU exemption, while a producer also said any metal trade flow shifts prompted by the tariffs could be marginal this year.
There will be "no big change I think. April 30 is too nearby, so not much can reach the US that quickly," a trader said, adding the move was "definitely bearish [for the] Midwest in general as they keep changing the rules in the direction of more exemptions."
US Midwest aluminum premiums hit three-year highs in the wake of the original tariff announcement.
A trend towards more exemptions could also hit US producers' plans to restart currently mothballed capacity, sources said.
"If they are over-extended with exemptions that would not be attractive for restarts," a second trader said.
With the London Metal Exchange aluminum price also moving lower during recent sessions, the second trader said: "A supplier needs to feel comfortable with the price and the market outlook in order to restart his plant."
Several sources said the most interesting case would be that of Russia, querying whether Russian metal could be diverted from the US to Europe.
A producer, however, said that even though primary ingot flows could shift easily, he did not believe that anything would change until the very end of the year, adding that he already had all his deals in place with his US customers for the rest of year and did not have any particular issues.
When it comes to a possible shift of Australian metal to the US, most European sources said it was very unlikely, as the Midwest premium would need to be high enough to compensate Australian suppliers for the freight costs, while many of them already have long-term contracts with Japanese consumers.
"I see marginal changes, why risk your market share and prestige?" the second trader said. "Particularly since you don't know how long the exemption will last," he added. "If Australians have extra metal then maybe they could look to ship it to the US."
According to other two traders, the Chinese economy and aluminum production there remain crucial -- a point with which industry group European Aluminum seems to agree.
While it welcomed the temporary EU exemption to the tariffs, the group also reiterated its view that "the real problem" remains "how to tackle Chinese overcapacity."
Even with a permanent exclusion from US tariffs, "this major challenge will remain," it said, noting forecasts for Chinese primary aluminum production growth increased from 5% to 13% in 2017 despite winter stoppages at several Chinese smelters, while Chinese exports to the EU of semi-fabricated products saw a double-digit increase in 2017.
