Rio Tinto (LON, ASX: RIO), one of the world’s largest aluminum producers, runs a refinery and five smelters in Canada’s Quebec province, with most of the metal flowing south to the US market.
Now, with President Donald Trump’s tariffs, it’s suddenly cheaper for Rio to buy aluminum in the US and resell it to American customers rather than move its own metal across the border.
Trump’s 50% tariff on aluminum imports, which took effect in June, forced Rio to curb shipments to the US and instead buy supplies from rivals — as long as those supplies are already in the country. The shift in strategy was described by people familiar with the move who asked not to be identified discussing sensitive commercial matters.
Trump casts his tariffs as necessary to protect American industries, and they are already having a major impact. They have roiled North America’s highly integrated metals market, while pushing aluminum prices well above global benchmarks. Companies such as Rio must quickly realign operations or risk their profits.
“Producers will need to adjust their operations to the extent they can if they’re bringing metal in from outside the US,” said commodities trader Darrell Fletcher, a managing director at Bannockburn Capital Markets. “You’ll have to get creative.”
Rio’s strategy, however, has limits. The US aluminum industry doesn’t produce enough metal on its own to satisfy the domestic market. With fewer imports, American aluminum buyers will rely more on the dwindling US stockpiles Rio is already tapping.
The company is purchasing aluminum blocks — known as ingots — on the open market, with trading houses and some banks involved in the transactions, according to the people. The metal that hits the market is produced by Rio’s competitors, including Alcoa Corp., Emirates Global Aluminum and Century Aluminum Co., the people said. Some comes from warehouses at various US ports, they said.
Rio has bought at least 50,000 tons of aluminum from the US spot market since June, according to some of the people. In contrast, the company shipped 723,000 tons of aluminum to the US in the year’s first half, most of it passing before the 50% levies took effect.
A Rio spokesperson said the company doesn’t talk about its commercial strategy.
Aluminum prices in the US have been rising above other international markets since January due to the tariff threat. The so-called US Midwest premium – the amount added to global price benchmarks to deliver the metal to that region – jumped 81% since early June.
Aluminum trades around $2,600 a ton on the London Metal Exchange. After adding the Midwest premium, the US price is almost $4,200 a ton.
In spite of the surge, prices still haven’t entirely factored in the new tariffs. For Rio, there’s no incentive to ship aluminum from Canada, where the company’s facilities — clustered in Quebec — take advantage of cheap hydroelectric power and easy transportation links to the US.
Canada is the biggest foreign supplier of aluminum to the US, accounting for 53% of imports of the metal in the past 12 months, according to US government trade data.
Rio says the tariffs on its Canadian-made aluminum generated gross costs of $321 million in the first half. Competitors are also feeling the pinch. Alcoa, the largest US producer, said in July that US tariffs on Canadian shipments in the first half cost the company $135 million.
“The tariffs are already starting to reshape global aluminum flows, particularly affecting producers in Canada,” said Ewa Manthey, a commodity strategist at ING Groep NV. “Despite the tariffs, the US aluminum industry remains constrained — only four operating smelters exist. Domestic capacity is insufficient to meet demand, and new plants face high energy costs and long lead times.” (By Yvonne Yue Li and Joe Deaux)
