en.Wedoany.com Reported - President Trump signed a proclamation adjusting Section 232 tariffs on aluminum imports and directed the Department of Commerce to develop a smelter investment incentive program. The London Metal Exchange (LME) cash aluminum closed at $3,155 per metric ton, while the three-month contract was priced at $3,140 per metric ton, with spot prices exceeding futures, indicating near-term supply tightness.
The LME forward curve shows a backwardation of $120 per metric ton between the cash price and the December 2029 contract, meaning the long-term contract price is 3.8% lower than the spot price. This suggests the market expects supply constraints to persist beyond the time required for new smelting capacity to come online. The policy targets domestic smelting capacity gaps rather than weak aluminum demand. US smelters cannot meet domestic primary aluminum demand. Although the proclamation does not quantify the gap, it combines Section 232 tariffs with capital incentives to accelerate investment.
Under Section 232 of the Trade Expansion Act of 1962, the president has the authority to adjust imports deemed a threat to national security. The proclamation directs the Department of Commerce to establish an incentive program, allowing approved reshoring companies to import an equivalent amount of primary aluminum at half the standard Section 232 tariff rate, reducing import costs during capacity construction. However, the proclamation does not specify when approvals will begin.
Since new smelting capacity takes years to build, the proclamation does not immediately increase US aluminum supply. The policy encourages multi-year investment rather than short-term production increases. If the Department of Commerce releases the incentive program rules, the $15 per metric ton backwardation between LME cash and the three-month contract could narrow. In June 2026, China's aluminum scrap imports fell 16.9% year-on-year to 133,000 metric tons, down 12.5% month-on-month, marking the third consecutive monthly decline. If this trend continues—with a 16.9% year-on-year decline and a 12.5% month-on-month decline—after a fourth consecutive monthly drop, the $120 per metric ton backwardation between LME cash and the December 2029 contract could widen further, as reduced recycled material exacerbates the domestic supply gap.
Aluminum consumers face higher input costs unless their suppliers qualify for the reduced tariff rate. US primary aluminum producers may benefit from approved projects reducing import competition and supporting capacity expansion. LME warehouse data shows canceled warrants totaling 33,875 metric tons, accounting for approximately 12% of total inventory of 280,100 metric tons, indicating sustained demand for physical metal.
LME cash aluminum prices are higher than all forward contracts through December 2029, creating a $120 per metric ton backwardation. This structure is unlikely to normalize until new supply enters the market or physical demand weakens. If the LME three-month aluminum price rises above the spot price, or if canceled warrants fall below 12% of inventory, it would indicate that near-term supply tightness is easing. Until these signals emerge, the current backwardation continues to support the view of constrained supply.
