Hindalco sees neutral-to-positive impact on its US business from Trump tariff

Hindalco Industries MD Satish Pai

Metals major Hindalco expects neutral-to-positive impact on its US business due to the imposition of a 25 percent tariff on all steel and aluminium imports to the US, managing director Satish Pai told Moneycontrol in an interview on February 14.

President Donald Trump announced the US levies on February 10.

"The tariffs go into the Midwest premium, and when the Midwest premium goes up, Novelis' scrap benefit goes up because LME plus premium is a pass-through for (Hindalco's US subsidiary) Novelis. It is true that the end consumer will see inflation with higher prices. What impact that will have on the US economy and US prices, we will have to wait and see. But for Novelis, right now, it is neutral to positive," Pai said.

The Midwest premium (MWP) is the regional price of aluminium in the Midwest region of the US. It's calculated using a daily survey of buyers and sellers. LME is the London Metal Exchange. Prices on its board are used as international benchmarks.

Novelis supplies premium aluminium sheet and foil products to the beverage can, automotive, aerospace and speciality markets. It contributed about 58 per cent to Hindalco's total revenue in the October-December quarter.  The company is planning a $4.1-billion greenfield rolling and recycling facility in Bay Minette, Alabama,  and was seeking benefits under the Inflation Reduction Act (IRA) introduced during the Biden administration.

Novelis plans to fund its capex through internally generated cash flow and had already spent  $1.3 billion as capex until Q3 FY25. Its  net debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) was at 2.90 as on December 31, 2024, and the management expects this to rise further up to  3.5  and once the project is completed in the second half of 2026, the leverage would be brought down.

When asked about potential IRA benefits under the new government, Pai said, "There are no additional benefits right now with the change in the administration. We will have to see. But we are feeling more confident because the Bay Minette project is what the new administration wants, which is expansion of manufacturing capacity in the US. So a large project like this will be seen very favourably by the new administration."

Meanwhile, Hindalco flagged negligible impact from the tariff on its shipments, as its exports to the US are not significant.

"Only 0.001 percent of aluminium exports goes to the US, and there are no copper exports," Pai said. The 40:60 domestic-to-export mix primarily involves exports to Asia, not the US, he added. "Over the last couple of years, after the freight rates went high, we stopped exporting to the US. Also, our domestic sales went up. Before it used to be more than 50 percent export. Now we are 40 percent and next year it will be even lower because our downstream products in India are expanding," Pai explained.

When asked about concerns over dumping, Pai said, "The aluminium duties that have come, 90 percent of US aluminium comes from Canada. The country that will be impacted will be Canada and last time as well they saw... What happens is the Midwest premium goes up by that 25 percent. So, ultimately, the US consumer  will pay that price because it's a pass-through. Already, they had ADD 232  also put in on Chinese aluminium. So that has already played out over the last two years."

The 2018 Section 232 tariffs on steel (25 percent) and aluminum (10 percent) were originally implemented under the first Trump Administration to address national security concerns related to global overcapacity, particularly the subsidized steel production in China.