The Metals Market in the 2025 Tariff Environment: Focus on Aluminum Products

April 2025

Rapidly changing trade and tariffs policies will affect most markets and companies. U.S.-based manufacturers may have a mix of domestic and imported components, and changes in tariff policies can affect both cost and supply. This report is specific to importers of semi-finished aluminum products in the form of ingots, bars, coils, plates and other goods.

Aluminum Tariffs – Recent History

In March 2018 the current administration imposed a series of tariffs under Section 232 of the Trade Expansion Act of 1962 that effected imports of steel and aluminum products at 25% and 10%, respectively. In the years that followed most of those tariffs were reduced or eliminated in favor of volume quotas and other agreements. Despite those agreements, imports of foreign goods continued to increase.

In April 2025 the current administration reimposed 25% tariffs on both steel and aluminum products. While many other tariffs have been paused for 90 days, tariffs on steel and aluminum remain in place and stand separately from  blanket tariffs. Steel and Aluminum are not subject to the current additional across-the-board 10% tariffs now on most imported goods.

Aluminum Market Dynamics

There is worldwide trade in pure unwrought aluminum in the form of ingots, bars and other products. Unwrought aluminum is smelted in producing countries and then exported to other countries where the aluminum ingot is then remelted and cast into coils, plate, automotive parts and other goods. The cost of aluminum is generally based on values reported on the London Metals Exchange (LME) which serves as a clearing house or stock market with spot pricing and futures prices.

In addition to the LME value of aluminum there are certain regional premiums that represent the additional cost for transport, tariffs, and warehousing to various parts of the world. In the U.S. those additional fees are referred to as the Midwest Premium. As of April 4, 2025, the LME value of aluminum was $1.07 per pound and the Midwest Premium was $0.38 per pound for a combined $1.45 per pound.

For higher value semi-finished products like wire, coils or plate, the cost of goods is based on both the cost of metal and value-added processing. Accordingly, the unit cost of these goods would be higher and the tariffs correspondingly higher.

In the aluminum industry, selling prices are based on the cost of aluminum metal and the conversion costs (fabrication cost) required to transform unwrought products into finished products. In the jargon of the industry, this is referred to as “Fab over metal.”  Fabrication costs are typically static in the short term while the cost of metal is based on prior period averages and changes every month.

These pricing agreements allow producers to pass on changes in the cost of aluminum metal.   An increase in the cost of aluminum results in both higher purchase costs for raw materials and higher selling prices.

Tariff Impacts

Should these tariffs take effect, the cost of aluminum inventories would be expected to increase by 25% or whatever the tariff of the day is. A 25% tariff on unwrought aluminum at current market prices would equate to $0.36 per pound. While these tariffs only affect imported goods, U.S.-based aluminum producers would be expected to increase their prices in a similar fashion, thus increasing the cost of all aluminum used in the U.S. by a similar amount.

Key Implications for ABLS With Exposure

• Due to aluminum’s high cost, companies dealing in aluminum products typically run lean, turning their inventory quickly. As such, the new tariffs will affect them at a rapid pace.
• Increases in the cost of aluminum will increase the total cost of inventory and quickly lead to similar increases in both accounts payable and accounts receivable.
• For an ABL with lending Caps in place, higher purchasing cost might push some companies to the top of those caps thereby limiting their ability to purchase at the prior volumes.
• Material pricing agreements allow companies to pass through increased material costs. However, not all customers can absorb these price increases, possibly reducing demand.
• Aluminum is used in many building products including doors, windows, patio enclosures, siding, and gutters, as well as a range of commercial products. Increased selling prices for these products could lead to decreased demand.
• Gross margin percentage may be negatively affected as material costs represent a greater part of the cost of goods sold.
• As tariffs hit, costs will go up immediately but the corresponding increase in accounts receivable will lag by two to three months (known as payment in month three), potentially negatively affecting the borrowing base.

It is important to also consider that a “hidden effect” of these evolving tariff developments may actually be decreasing gross margin percentages for aluminum products. Why? Because although an increase in the cost of aluminum drives up both the cost of goods and selling prices, profit margins – as measured in cents per pound – likely will remain the same. Therefore, margins as a percentage of selling price typically decrease in periods of increasing materials costs.

Lenders must remain a step ahead in this environment and should consider where they might need to allocate additional lending capacity moving forward, as the cost of aluminum rises. Lenders also should be prepared to see increased borrowing by those companies that have historically enjoyed excess lending capacity. Those companies that already are near current lending caps may reach maximum capacity and need additional credit.

Hilco experts work in machinery, equipment and enterprise valuation for numerous companies in the metals and mining industry and thoroughly understand the unique dynamics of price volatility on manufacturers, distributors and fabricators. We have unparalleled market trend data to assist our customers in the ongoing assessment of how market forces drive recovery values. If you’re looking for a thorough process and a proven partner to help you gauge metals recovery values in your portfolio or your business, give us a call. We are here to help.