Will Canadian aluminum firms move to the U.S.?

The Canadian aluminum sector is already

reeling from the heavy tariffs imposed

by US President Donald Trump. And now

it's facing another potential threat.

The Americans are offering tariff relief

if companies move production south of

the border. Is there a risk that this

will trigger an an exodus of aluminum

assets from Canada? Let's get more from

Jean Simard, president and chief

executive officer at the Aluminum

Association of Canada. Jean, thank you

very much indeed for joining us.

My pleasure. Thanks for inviting me.

Before we get into the latest US move or

offer, um can you just remind us so what

tariff is Canadian aluminum facing when

it moves into America?

It's a 50% tariff shipping primary metal

towards the US.

And that's massive. I mean, have you

ever has the industry ever seen anything

like this before, this kind of burden?

Never in our history.

And it's very impactful for the prices

in the US.

Metal [clears throat]

right now is trading

with

Midwest duty premium

plus LME around $6,000 a ton.

And for the same ton in Europe, it's

about $2,000 less.

Wow. So obviously the Americans to some

extent shooting themselves in the foot.

They need Canadian aluminum and they're

having to pay much big taxes to the

government for it.

They do [clears throat] and they do need

it even more so now with the Middle East

crisis which basically takes 20% of the

Western world's metal out of commission

for the time being.

Right. Have prices been going up then

further as a result of the Gulf War in

the United States?

>> Yes.

Yeah, in the US and in Europe

the

the regional premiums are sending an

increased price signal to be able to

attract available metal into both

markets.

And [clears throat] as we as we we we

dived into this Middle East crisis,

inventories were already very low on the

in the market. So we went from a normal

600,000 tons or 6 weeks inventories

to about 1 week inventory.

in the market.

So we're we're we're getting close to

supply shock.

The if these tariffs remained on

Canadian primary metal, would it

ultimately mean destruction of

sections of the Canadian aluminum

industry?

No, not at all because basically the

tariff is now paid by the market. It's

it's the US

manufacturer [clears throat] and then

the end the US consumer that now pays

the full tariff plus even a premium to

make sure that they have the metal that

they need. So

we're not [clears throat] impacted

directly at this point in time. We were

last summer when it kicked in and it

took some time for the market to factor

in the full price of the tariff, but

we've gone over that. And now we can

arbitrage between the European market

and the US market. And when prices when

the net back is better in Europe, we

ship to Europe. This is what happened

over the past 3 months and forced

accelerated depletion of inventories in

the US.

The latest American move is saying,

well, we'll give you tariff relief if

you move operations into this country,

but it seems like a tall order. They

don't have the hydroelectric power that

Quebec has for example.

Well, one they don't have the

hydroelectric power. When you look at

what we produce here and ship to the US

which is 2.7 million tons of metal a

year,

it takes 40 million megawatt hours of

energy to produce.

They don't have the energy. They don't

have the hydropower. It's the equivalent

of five Hoover Dams.

So

we're not there yet. And you're not

going to move assets that are

competitive worldwide

excuse me, that have been here for

decades into a different market just

because of a tariff situation. Nobody's

going to bet billions of dollars of

investments based on a contextual tariff

situation. Right. Can you remind us

you're not a stock guy and I'm sure you

don't want to get into too much details

commenting on one country on one company

I mean, but what is the position of a

player like Alcoa which has significant

production assets in Canada, but also is

a major US aluminum player?

Well, I can't comment on one specific

member. All I can say about Alcoa is

they have they do have

very valuable assets here in Quebec

and they do have assets in the US, but

Alcoa's uh

key assets and it's it's what Bill

O'Dwyer is their their head the head of

the company have said numerous times are

here up north

excuse me in the Quebec region. They're

anchored on on hydroelectricity

and that's where the future is for them.

Tell us what what ultimately will happen

with this significantly higher aluminum

cost in the United States. Will there be

substitution away from aluminum for

example as a packaging material?

Well, a whole series of things can

happen.

One, [clears throat]

there will be push back in demand like

demand destruction. You've heard the the

GMs, the Fords of this world that are

saying, you know, we can't we can't go

on like this because it's too expensive.

So if you have a you're selling a Ford

150 that is made out of

of aluminum and steel where it's

probably a cost impact per vehicle of

about $5,000 US dollars before taxes.

That's not sustainable. So there's going

to be some demand destruction. There

might be some substitution for

substitution to happen, you have to get

at the point of a manufacturing cycle

start-up where you decide that a model

is being pulled out and replaced by a

new one and instead of using aluminum

you're going to use steel or composite

or stuff like that. So it doesn't happen

all at once everywhere at the same time.

Yes. But it might happen as we move

through time and keep having this tariff

in place. But you know,

as it happens to aluminum, it happens to

other metals. So we've we're seeing

substitution

from copper to aluminum in in other

sectors. So it's it it moves from one

metal to another. Thank you so much.

We'll have to leave it there. Jean

Simard of the Aluminum Association of

Canada. Thanks, Jean.