Russian Aluminum Tariff 2023: The United States Imposes 200% Tariff and Sanctions Over 100 Entities

A key concern of many was whether the United States would levy tariffs and economic sanctions on Russia’s aluminum supply after its war against Ukraine. The U.S. has already taken several measures against Russia over the ongoing war, leaving the global aluminum market uncertain about whether the world’s largest producers of metal would be targeted too. The world finally received their answer in 2023. 

Aluminum 

The U.S. government provided a report outlining the adjustments of imports of aluminum in the U.S. Here’s a rundown of the tariffs you should know about: 

1. On March 10, 2023, the White House imposed a 200% tariff on Russian aluminum, including aluminum imports from Russia and products derived from Russian aluminum. This applies to all aluminum imports from Russia, smelted in Russia or cast in Russia. 
2. On April 10, 2023, the U.S. government issued a 200% duty on any aluminum products that consist of primary aluminum smelted in Russia or cast in Russia. The same applies to products derived from aluminum that a Russian manufacturer has smelted or cast. 
3. Primary aluminum will refer to any new aluminum metal created from aluminum oxide by the electrolytic Hall-Heroult process. 

The government will place these new U.S. tariffs on Russian aluminum in the Trade Expansion Act of 1962 under section 232. The White House refers to the following texts for these tariffs: 

1. The challenges U.S. aluminum producers face regarding high levels of aluminum imports and escalating energy prices. 
2. The recent 53% increase in Russian aluminum imports between March and July 2022 from manufacturers who tend to export aluminum. 
3. Russia’s aluminum industry plays a key role in Russia’s defense industrial base. 

Still, these duties may have a larger effect on companies in third-world countries. For this reason, the proclamation states that any countries that already enforce a 200% tariff on Russian aluminum or more may be exempt from the tariff. 

Other Russian Products 

The White House also increased duties on a few other products from Russia and stated it in a proclamation on February 24, 2023. The U.S. government stated that taking any of the actions mentioned will result in an increase in tariffs on more than 100 Russian minerals, metals and chemical products worth around $2.8 billion to Russia. 

Some of the rules mentioned in the proclamation include a 35%-70% increase in duties on certain products mentioned under the Suspending Normal Trade Relations with Russia and Belarus Act. A U.S. representative said that the list covers most metal and metal products. Some of the other Russian products include petroleum fuels, crude oil, coal, coal products, liquified natural gas and non-industrial diamonds. 

The Government Reveals Sanctioned Entities on Russian Aluminum 

To get a clearer picture of what the U.S. government is prohibiting, here’s what they established. They prohibit any process, act or industry of extracting coal, ores, precious stones or any other minerals or geographical materials from the surface or underground in the Russian Federation. They also prohibit any acts of manufacturing, procuring, refining or processing these geological materials or transporting them from, to or within Russia. 

As a result, the White House may impose a few sanctions on any entity or individual who continues to operate or has operated in the sector following this proclamation. This includes four primary entities: 

1. OOO Metallurg-Tulamash: This is a Russian steel manufacturer involved with the Russian Navy. 
2. Mtsenskprokat: This Russian company produces unique metal alloys and considers the Russian defense industry their client. 
3. Joint Stock Company Burevestnik Central Scientific Research Institute: This Russian company provides metal production to create defense equipment. 
4. TPZ-Rondol OOO: This Russian organization specializes in coating metals for an ammunition manufacturer. 

Unless you have an exemption or applicable license, as a U.S. citizen, you will be unable to engage in any direct or indirect dealings with companies on the Specially Designated Nationals (SDN) list. 

Impacts and Factors to Expect From The Russian Aluminum Tariffs 

Initially, the White House was considering implementing a complete Russian aluminum ban and renewed sanctions on Rusal. Due to the Russian aluminum market’s popularity in Western and global markets, the U.S. government has allowed Russian metals to continue selling in the U.S. Still, there are some considerable ways these tariffs will affect the aluminum market and trading prices going forward. 

Decreased Dependence on Russia 

The U.S. has already been less dependent on Russian aluminum since 2018, meaning the tariffs are less likely to tighten aluminum supplies in the U.S. According to one report, Russia only accounted for 5% of U.S. aluminum imports in 2018 and continued to drop in 2018 and 2019. Some demand-side and macroeconomic factors that affect the Russian aluminum market include the prices of the metal on the London Metal Exchange (LME), which dropped significantly due to self-sanctioning among consumers. 

Since mid-2020, when economies slowly started opening again after the COVID-19 pandemic, the Russian aluminum market steadily began growing again, improving industrial demand. In the weeks leading up to Russia’s invasion, prices skyrocketed to more than 30% for the first quarter of 2022. According to one report, while the U.S. and Europe reduced Russian imports, Rusal, one of Russia’s biggest aluminum production companies, experienced an increase in worldwide aluminum production rates by 1.9% in 2022. 

Reduced Economic Demand for Russian Products in the U.S. and Europe 

There will likely be a decline in aluminum prices due to the monthly rise in LME inventories and increased interest rates in the U.S. due to corral inflation. This may create a slowdown in demand from downstream manufacturing activities, especially since the S&P Global Manufacturing PMI in the U.S. is still in contraction. It’s also likely that a drop in prices may occur due to the uncertainty in the U.S. financial system caused by the fallout of Silicon Valley Bank. 

Higher Premiums in the West 

The new U.S. tariffs now mean companies will experience higher physical premiums in the U.S. Since the country will need to replace their Russian imports with metal from other suppliers, such as those from the Middle East, although they often come with higher transport costs. European duty-paid premiums have already risen to $310 per tonne over the LME cash price, while the Midwest delivery has risen from $448 per tonne over the LME cash price to $647 per tonne. 

Impacts of Further Russian Aluminum Sanctions

One uncertainty is whether Europe will follow the U.S. in placing tariffs on Russian aluminum or take it a step further by implementing a Russian aluminum ban. Russia’s aluminum supplies make up roughly 13% of Europe’s imports, making them more dependent on their metals. Since energy prices have already soared in Europe, smelters in the region halted production, tightening the supplies in the region. Going forward, it’s likely that Western nations will continue to consider the war in Ukraine when making changes to the aluminum market. 

Similarly, if Russia retaliates against the U.S. for its import tariff, there is a chance this will lead to supply-side disruptions in the U.S. metals market. Given that Russia is the largest palladium producer, accounting for 40% of global palladium production and 37% of U.S. palladium imports, a retaliation may heavily impact the U.S. metals market.