Mexico's aluminum tariffs shake up market dynamics

The recent imposition of a 35% duty on P1020 aluminum imports by Mexico on April 26, has reverberated throughout the global primary and scrap aluminum markets.

The move has particularly impacted over 90% of Mexico’s P1020 imports, with countries like India, South Africa, Russia, and Argentina bearing the brunt. While exemptions have been granted to nations with existing free-trade agreements, such as the U.S., Canada, EU, and UK, the North American aluminum industry, especially Mexican consumers, faces profound implications ranging from increased costs, supply chain disruption, competitive disadvantages and economic impact.

Notably, Mexico’s increasing reliance on EC chops — aluminum scrap — underscores the industry’s adaptability amid tariff uncertainties. While EC chops have witnessed a surge in domestic use, their export availability has diminished as Mexican companies seek P1020 alternatives.

Despite lingering hopes for duty reversals, various factors, including the absence of ongoing negotiations, have tempered prospects for additional exemptions. Simultaneously, P1020 inquiries in the U.S. have surged for Midwest/Southeast delivery. However, sources in Mexico confirmed transactions remain on hold as market players await potential policy adjustments from the Mexican government.

Charles Johnson, CEO of the Arlington, Va.-based trade group Aluminum Association, views Mexico’s tariffs as a constructive step toward enforcing trade commitments outlined in the USMCA.

While discussions between the Aluminum Association and the Mexican government may lead to tariff reconsideration, these deliberations will likely extend over several months.

Addressing the shortage of supply in the U.S. scrap metals market necessitates a multifaceted approach and collaboration among industry stakeholders. When speaking to market participants, I ask what type of solutions there could be out there to divert from this shortage and here were some key takeaways:

Investment in recycling infrastructure: Increasing investment in scrap processing facilities and collection networks can enhance the efficiency of recovery and processing.
Promotion of recycling programs: Encouraging participation in recycling programs among businesses, industries, and households can boost supply.
Enhanced collection and sorting practices: Implementing advanced collection and sorting practices can improve the quality and quantity of scrap metals collected.
Support for small- and medium-sized recyclers: Providing support and incentives for small- and medium-sized recyclers can diversify and expand the sources of scrap metal supply.
Collaboration with end users and manufacturers: Collaborating with end users and manufacturers can create a steady demand for recycled metals.
Research and innovation: Investing in research and innovation can unlock sources of scrap metal supply and improve overall recycling efficiency.

By adopting a comprehensive approach, the U.S. scrap metals market can effectively mitigate supply challenges and foster a sustainable and resilient recycling ecosystem.