LONDON, July 29 (Reuters) - Canadian aluminium smelters

have started diverting primary metal away from the United States

in response to the ratcheting up of import tariffs, first to 25%

in March and then to 50% in June.

Alcoa Corp ( AA ), which operates smelters on both sides of

the border, has since March sold more than 100,000 metric tons

of Canadian metal to consumers outside of the U.S., the company

told analysts on its quarterly earnings call.

U.S. imports of primary aluminium dropped sharply in April

and May even before U.S. President Donald Trump sprang his

second tariff surprise in June.

Some of the import gap is being filled by surging shipments

of recyclable aluminium, which as a raw material is subject only

to Trump's lower reciprocal tariffs.

Physical market dynamics are likely to remain highly fluid,

dependent both on the U.S. premium and on Trump's willingness to

grant exemptions.

PRIMARY IMPORTS DOWN, SCRAP UP

U.S. imports of primary aluminium spiked to a near two-year

high of 442,000 tons in March as suppliers rushed to beat the

first tariff deadline.

However, no-one saw the second hike coming and

implementation was almost immediate, meaning there was no

opportunity to front-run the new 50% rate. Indeed, May imports

of 268,000 tons were the lowest monthly tally since December

2022.

Lower shipments from Canada have accounted for most of the

volume decline. The largest supplier to the U.S. market is

redirecting metal that is not committed on annual contracts,

which in the case of Alcoa ( AA ) is around 30% of its Canadian

production.

Aluminium is being re-routed to Europe, with WBMS trade data

showing Canada exported 11,800 tons to the Netherlands in April

and 25,500 tons to Italy in May.

Imports of aluminium scrap, on the other hand, are

accelerating thanks to the differential between reciprocal and

aluminium tariffs. Arrivals totalled 227,000 tons in March-May,

up 40% on the same period of 2024.

There has been a noticeable step-up in imports from Europe,

albeit from a low base, which has led to the European Commission

activating its trade surveillance system prior to possible

export restrictions. It has promised a decision by the end of

September.

MARKET WATCH

The U.S. Midwest premium has surged from 24 cents

per lb ($520 per ton) in January to 68 cents in reaction to the

double tariff hike.

That, however, is still not enough to cover the tariff costs

for Canadian metal, according to William Oplinger, Alcoa ( AA )

president and CEO.

Accounting for both the tariff and the base costs of

transport to U.S. consumers, the Midwest premium needs to be

somewhere between 70 and 75 cents per lb, he said.

Buyers are drawing down inventory rather than committing to

new spot purchases as they wait to see whether there will be

exemptions to what are currently blanket tariffs.

POLITICS WATCH

They are right to do so.

There are signs that the Trump administration may lower or

even eliminate aluminium tariffs for those countries signing up

to broader trade deals.

That with the United Kingdom, for example, included a

reduced 25% import tariff for both aluminium and steel products.

The freshly-minted deal with the European Union also comes

with a potential carve-out for steel, aluminium and copper,

according to European Trade Commissioner Maros Sefcovic.

European and U.S. trade negotiators have found common cause

in the form of Chinese over-capacity, he said. The higher tariff

rate will stand for now, but the two sides are working on a

"metals alliance" that would see tariffs replaced with a quota

system.

It would be strange for Canada not to be included in such an

alliance, given the country's importance to U.S. aluminium

supply.

HIGH SMELTER RESTART COSTS

While the tariff landscape continues to shift, one thing is

for sure. It's going to be a long time before the U.S. has

enough smelter capacity to reduce its import dependency.

Although there are two new smelter projects, they are

competing with Big Tech for low-cost power. Even if they can

lock in energy supply, they would take many years to construct.

The U.S. also has around 670,000 tons of idled smelting

capacity, according to the United States Geological Survey.

But much of it is old and needs significant investment.

Alcoa ( AA ) has one 50,000-ton-per-year line idled at its Warrick

smelter in Indiana, but it would take around $100 million to

refurbish and a year to ramp back up to full production.

"We would need to ensure that the tariffs will stick around

for quite a while" to justify a restart decision, Alcoa's ( AA )

Oplinger told analysts.

Tariffs in one shape or another seem likely to stay, but how

many trade partners can duck the full 50% tariff rate is an

increasingly open question.

Until the picture becomes clearer, there are not going to be

many U.S. smelter restarts.

But there is going to be a lot more volatility in the

physical supply chain.

The opinions expressed here are those of the author, a

columnist for Reuters.

(Editing by Jan Harvey)