The sharp jump in premium on aluminium sold in the US after the levy of 25 per cent on aluminium imports will benefit Novelis, the US subsidiary of Aditya Birla Group company Hindalco Industries.
The premium of aluminium sold in the US has already doubled to $800 a tonne over the LME prices adding to Novelis’ bottomline. However, Novelis has to manage and get an exemption on imports duty on primary aluminium from its plant in Canada.
Novelis imports primary aluminium from Canada and produces beverage cans and automotive parts in its downstream units in the US.
tariff impact
In 2018, the Trump government had levied a 10 per cent tariff on aluminium imports and had exempted Novelis from the duty as it produces value-added products in the US and generates employment.
Aditya Welekar, Senior Research Analyst – Metals, Axis Securities said the premium of aluminium in the US called as Midwest premium has already doubled to $800 a tonne over the LME prices ever since the US President Donald Trump started talking about levying tariff on Canada and Mexico and this will offset the impact of higher tariffs on aluminium supply from Canada and Mexico for Novelis which has production facilities there.
However, if the tariff continues for long, he said the demand in the US may slowdown due to high prices.
Furthermore, Novelis management is confident of getting an exemption for aluminium imports from Canadian and Mexican governments as it has done during the Trump’s previous term, he said.
Utsav Verma, Head of Research – Institutional Equities, Choice Broking said the immediate impact of aluminum tariffs by the US is positive for Novelis, as the US aluminum Midwest physical premium have spiked up, which improves profitability for Novelis.
Moreover, he said Novelis expects to apply for exemptions for metal flow from Canada and Korea and is confident of receiving them. With significant downstream investments in the US, Novelis is doing exactly what the US administration desires from corporations.
If tariffs stay for the long term, it could be inflationary and negatively impact demand on the ground for all sorts consumer goods though it is difficult to imagine that such high levels of tariffs will continue for long term, he added.
Incidentally, the US government has given the automobile industry one-month exemption from the import duty levy on Canada and Mexico.
