Morgan Stanley Assessment of US Aluminum Premium Amid Potential Tariff Reduction

Morgan Stanley analysts note that the United States is contemplating a reduction of the import tariff on Canadian aluminum from the current 50 % to 25 % as part of a prospective trade agreement, although the arrangement has not yet been finalized. The analysts stress that even with a lower tariff, the United States would continue to rely heavily on imports, covering roughly 80 % of its total aluminum demand.

In the first half of 2026, the United States imported 1.68 million tonnes of aluminum, averaging 280 000 tonnes per month. Canada, the historic largest supplier, exported 1.16 million tonnes in the same period, or about 192 000 tonnes per month, which represents 68 % of the United States’ import requirement. Prior to the imposition of tariffs, Canadian exports averaged 240 000 tonnes per month, sufficient to meet approximately 85 % of current U.S. import levels. The analysts point out that even if all Canadian production were redirected to the United States, the supply would still fall short of total U.S. needs.

The United States’ tariff‑relief mechanism permits tariff discounts for companies that expand capacity. Under this scheme, additional volumes could enter at reduced tariff rates, notably from the United Arab Emirates where Emirates Global Aluminium (EGA) and Century are planning a smelter with an annual capacity of 750 000 tonnes.

The Midwest Premium, a price differential reflecting the tariff environment, has been trading roughly 30 % above the implied tariff cost. With Canadian metal able to enter Europe duty‑free, the premium has compensated for the opportunity cost of not shipping metal to Europe, where premiums have also been strong. Morgan Stanley estimates that a reduction of the U.S. tariff on Canadian aluminum could diminish this competitive advantage, potentially lowering the Midwest Premium by about half of its tariff‑related component—approximately 10‑12 cents per pound.

Key Figures

  • Current U.S. tariff on Canadian aluminum: 50 % (proposed reduction to 25 %).
  • U.S. aluminum import share: ~80 % of domestic demand.
  • H1‑2026 U.S. imports: 1.68 million tonnes (280 kt/month).
  • Canadian exports to U.S.: 1.16 million tonnes (192 kt/month), 68 % coverage.
  • Pre‑tariff Canadian export average: 240 kt/month, covering 85 % of U.S. needs.
  • Planned UAE smelter capacity: 750 000 tonnes per year (EGA & Century).
  • Estimated premium decline: 10‑12 cents per pound, about 50 % of current tariff‑related premium.

Implications

The analysis suggests modest downside risk to the U.S. aluminum premium, primarily driven by the potential tariff cut, but underscores that supply constraints will persist, limiting the magnitude of any premium reduction.