Even Halving the Tariff on Canadian Aluminium Would Not Fully Cover the US Shortfall, Leaving Only Modest Downside for the Midwest Premium

Overview

The report assesses whether Canada could fully meet US demand if the US reduces tariffs on certain Canadian aluminium imports from 50% to 25%, as well as the implications for the US Midwest premium and European aluminium premiums. The core conclusion is that Canadian supply would still be insufficient to fill the US shortfall, so marginal imports would continue to bear a 50% tariff, although the additional premium arising from US-European competition for Canadian metal could narrow.

Core views

The US is considering reducing tariffs on certain Canadian steel and aluminium exports from 50% to 25% as part of a trade agreement that has not yet been finalized. The report believes that, if implemented, the lower tariff would encourage Canadian aluminium to shift from Europe to the US, but would not make Canada the sole supplier of all US import requirements. Approximately 80% of US aluminium demand relies on imports. In 1H26, the US imported 1.68 million tonnes of aluminium, averaging 280,000 tonnes per month, while Canada exported 1.16 million tonnes over the same period, averaging 192,000 tonnes per month, equivalent to only 68% of US imports. The chart further shows that all Canadian aluminium exports generally cover only 60%–80% of US demand, and Canada supplied just 60% of US aluminium imports in June 2026. Even using Canada's higher pre-tariff average monthly export volume of 240,000 tonnes, it could cover only 85% of current US import levels. Meanwhile, current monthly US imports are already approximately 65,000 tonnes lower than before the tariffs were introduced. The report therefore concludes that even if Canada redirected all its exports—or even its entire production—to the US, it still could not fully cover the US demand shortfall, and the remaining marginal tonnes would have to be supplied by other countries. The US aluminium tariff exemption mechanism could increase lower-tariff imports in the future, particularly from the UAE. EGA and Century plan to build a smelter with annual capacity of 750,000 tonnes, but this represents potential future incremental supply and cannot eliminate the current supply shortfall. For the US Midwest premium (MWP), marginal pricing is critical. Because the final tonne of aluminium would still need to be imported from a country subject to the 50% tariff, the report believes that even after the tariff on Canada is reduced to 25%, the MWP should reflect at least the 50% marginal tariff cost. However, the MWP is currently approximately 30% above the implied tariff cost. This additional component reflects not only the tariff but also the opportunity cost that the US must compensate Canada for when attracting metal away from the European market: Canadian aluminium can enter Europe duty-free, and European premiums themselves are also relatively strong. If the US reduces tariffs on Canadian aluminium, Canadian metal is expected to flow primarily to the US, easing US-European competition for this supply and thereby reducing the additional MWP premium above the tariff cost. Other suppliers, such as India and the UAE, could still choose between the US and Europe, although they would need to pay tariffs to enter Europe, so the report believes that some additional premium would remain justified. Overall, if the tariff reduction is implemented, the MWP could give back approximately half of its premium relative to tariff fair value, or about 10–12 cents/lb. Europe could receive short-term premium support from reduced Canadian inflows, but Middle Eastern supply is expected to recover in 2027, while a potential EU-India free trade agreement could also increase supply and weaken that support.

Analysis framework

The report first establishes a conditional scenario in which the tariff on Canada is reduced from 50% to 25%, then compares US import demand with Canadian exports and production to determine whether Canada could cover the US shortfall. It subsequently uses the tariff borne by the marginal source of imports as the basis for MWP pricing and incorporates the opportunity cost of allocating Canadian exports between the US and Europe. Finally, it examines how the US tariff exemption mechanism, the recovery of Middle Eastern supply, and a potential EU-India free trade agreement could modify future regional supply and premiums.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Comparison of US aluminium import demand with Canada's available export supply to assess the supply-demand shortfall

  The report compares monthly US import demand with Canada's monthly exports, pre-tariff export volume, and total production to determine whether Canada could independently supply the US and thereby identify the marginal tonnes that would still need to be provided by other countries.

• Event Games and Behavioral FinanceEvent-driven analysis

  Conditional scenario analysis of halving the tariff on Canadian aluminium

  The report uses the potential reduction of the tariff from 50% to 25% as the event trigger to analyze changes in Canadian trade flows, US-European competition for supply, and the knock-on effects on US and European aluminium premiums.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US Midwest Aluminium Premium (MWP)

  If the tariff on Canadian aluminium is reduced to 25%, the MWP could decline by approximately 10–12 cents/lb as US-European competition for supply eases.

  Strengths

  Marginal US imports would still be subject to a 50% tariff, providing fundamental support for the MWP.

  Weaknesses

  The current MWP is approximately 30% above the implied tariff cost, and part of this additional premium could dissipate as Canadian metal flows back to the US.

  Comparison

  Compared with European premiums, the MWP previously needed to provide sufficient compensation to attract Canadian metal that could enter Europe duty-free.

  Risks

  Implementation of the tariff reduction would create the modest downside risk described in the report.

• Canadian Aluminium Supply

  Lower US tariffs could encourage Canadian exports to shift from Europe to the US.

  Strengths

  Canada has historically been the largest aluminium supplier to the US, and its metal can enter Europe duty-free.

  Weaknesses

  Even if all exports or total production were redirected to the US, they would still be insufficient to meet all US import demand.

  Comparison

  In 1H26, Canada exported an average of 192,000 tonnes per month, while the US imported an average of 280,000 tonnes per month, implying approximately 68% coverage.

  Risks

  Changes in trade flows depend on whether the US-Canada agreement, which has not yet been finalized, is implemented.

• European Aluminium Premium

  Reduced flows of Canadian aluminium to Europe could support European premiums in the short term.

  Strengths

  European premiums are relatively strong, and Canadian metal can enter Europe duty-free.

  Weaknesses

  Middle Eastern supply is expected to recover in 2027, while a potential EU-India free trade agreement could also increase future supply.

  Comparison

  After US tariffs are reduced, exporting to the US would become more attractive for Canada, potentially easing US-European competition for Canadian metal.

  Risks

  The recovery of Middle Eastern supply and potential trade agreements could limit sustained support for European premiums.

Key data

• US Aluminium Demand Import DependenceApproximately 80%The degree to which the US relies on imports to meet aluminium demand
• US Aluminium Imports1.68 million tonnes in 1H26, averaging 280,000 tonnes per monthUsed by the report to measure current US import demand
• Canadian Aluminium Exports1.16 million tonnes in 1H26, averaging 192,000 tonnes per monthEquivalent to approximately 68% of US imports over the same period
• Canadian Export Coverage60%–80% of US demandThe proportion of US demand that all Canadian aluminium exports could cover, as shown in the chart
• Canadian Share of Supply in June 202660%Canada's share of US aluminium imports that month
• Canada's Average Monthly Exports Before the Tariff240,000 tonnes/monthEven at this level, Canada could cover only 85% of current US imports
• Change in US Imports Versus Pre-Tariff LevelsDecrease of approximately 65,000 tonnes/monthThe difference between current monthly US imports and pre-tariff levels
• Proposed Tariff on Canadian Aluminium ImportsReduction from 50% to 25%The trade agreement has not yet been finalized
• MWP Premium Relative to Implied Tariff CostApproximately 30%Reflects competition for supply and opportunity costs in addition to the tariff cost
• Potential MWP DeclineApproximately 10–12 cents/lbIf the tariff reduction is implemented, the MWP could give back approximately half of its premium relative to tariff fair value
• Planned UAE Smelter Capacity750,000 tonnes/yearAn EGA and Century project that could provide future lower-tariff supply through the US tariff exemption mechanism

Impact & implications

The report believes that the tariff reduction would primarily change the flow of Canadian aluminium between the US and Europe rather than eliminate the structural US import shortfall. Marginal US tonnes would continue to bear a 50% tariff, providing cost support for the MWP, but the additional premium created by US-European competition for Canadian supply could narrow. European premiums could benefit in the short term from reduced Canadian inflows but would subsequently remain affected by the recovery of Middle Eastern supply and potential trade agreements.

Risks

• The US-Canada trade agreement has not yet been finalized. If the tariff reduction is not implemented, the report's scenarios of Canadian metal flowing back to the US and the MWP declining may not materialize.
• If the tariff on Canadian aluminium is reduced from 50% to 25%, the MWP would face modest downside risk, with the report estimating a potential decline of approximately 10–12 cents/lb.

What to watch

• Whether the US ultimately reduces import tariffs on certain Canadian steel and aluminium products from 50% to 25%.
• Whether the US aluminium tariff exemption mechanism can bring in more lower-tariff supply, particularly through the 750,000-tonne-per-year UAE smelter project planned by EGA and Century.
• The pace of the recovery in Middle Eastern aluminium supply in 2027 and the impact of a potential EU-India free trade agreement on European supply.