CFTC Data Reveals Tariff Positioning for Aluminum and Steel
Greater competition for domestic aluminum steel could pressure the U.S.’s existing smelting capacity. Due to the lack of additional spare capacity, smelting costs may rise and widen arbitrage opportunities. Barring demand destruction, tariffs could support U.S. hot rolled coil (HRC) futures and Midwest premiums (MWPs) in the near term, potentially adding inflationary pressure on housing construction and transportation costs. The percentage of passthrough costs to the rest of the economy is currently unclear, but higher PPI will eventually drive CPI higher.
Over the last week, metals markets reacted to the Trump administration’s threat of 25% tariffs on aluminum and steel, with March aluminum Midwest premiums rising 0.27 to 0.39 from Feb 7 to Feb 12 and March HRC contracts rising from $813 to $852 over that same period. Since then, March HRC contracts continued to rally to $874 and March MWPs remained flat this morning. CFTC data shows that total open interest rose 2% for aluminum MWP, 7% ali European Premiums, 14% for HRC, and 3% w/w for North Euro HRC contracts (All charts are at the end). Notably, European premiums for aluminum saw a large uptick in net other reportable positions from 15 contracts on Jan 14 to 485 on Feb 11 (charts below).
The CFTC’s reportable open interest data can shed light on aluminum and steel markets over the last few weeks. Open interest is broken down by producers, money managers, swaps, and other reportable positions. The spread of open interest is the difference between longs and shorts. On the steel front, both HRC and North Euro HRC contracts saw heaps of activity. HRCs saw heavy swap flows rising from 522 in net swap positions on Jan 7, peaking at 3,044 on Feb 2, and fading back down to 2,248 on Feb 11. Over that time money managers picked up over 1k contracts in HRCs rising to 2,436 contracts. North Euro HRC contracts saw an increase in net swaps of 105 contracts to 635 between Jan 7-Feb 11 and net other reportable positions rose by 181 contracts to 476.
Taking a closer look at HRC futures, contracts from 2025-2028 saw a rapid convergence in prices on Feb 10, following the net positioning data for HRC and North Euro HRC position data.
Higher aluminum and steel prices wrought by the Trump Tariffs carry foreign and domestic implications. In the short run, there’s the potential to see an uptick in scrap aluminum demand. As we often see in China, scrap premiums rise during periods of high prices or switching to steel for certain construction applications. Tariffs on steel could be U.S. Steel’s saving grace given its existing domestic production capacity and the U.S.’ relatively lower import reliance on steel. USGS notes that iron and steel compete with aluminum in auto manufacturing, potentially putting additional pressure on steel depending on the ultimate price differential.
Similarly, copper and aluminum, both highly ductile and malleable metals, act as substitutes for electrical wiring. But, due to aluminum wiring costing half as much as copper, it is often contractors’ or developers’ preferred choice. While significant, the tariffs raising the price of foreign aluminum are not severe enough to trigger a switch to copper. It is, however, enough to increase the cost of wiring a new home by more than 25%.
Higher price differentials on aluminum MWP could also trigger competition to export to the U.S., widening arbitrage opportunities. Selling at a discount to spot/futures, could potentially undercut existing U.S. aluminum producers and capture market share. Conversely buying scrap abroad at discounts/selling domestically could yield upside if done effectively.
Tariffs will undoubtedly put upward pressure on PPI, which could permeate into higher headline inflation. It all depends on how producers will adjust to higher aluminum and steel prices and their customer’s demand elasticities. A lazy analysis of differenced and logged data from 1951-2025 (to ensure stationarity) shows us an 80% correlation between PPI and CPI and an adjusted R^2 of 0.278. Further work should be done on this front but goes to say that tariffs won’t bring your egg prices down—nor solve the housing crisis—and they certainly will not bring the aluminum industry back to Wyoming.
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With edits from & Ian Lange of the Colorado School of Mines.
Disclaimer: None of this should be construed as financial advice.