CONSUMER BUYING PRICES

See Metals section below for 2026 aluminum forecast

One would think that after 11 months of commenting on the tariffs and the impact of Section 232 on aluminum and steel, I would finally be finished. But the tariff pedal is still to the metal.

On February 6th, President Trump signed an executive order that may result in additional tariffs on any countries trading with Iran. According to Harbor, this 25% tariff on U.S. aluminum imports from major trading partners such as Canada, the UAE, Oman or India, would translate into at least a $0.35-0.37 per lb. additional charge on the U.S. Midwest P1020 premium and other primary aluminum products.

This new tariff will be more bad news for metal manufacturers, and it makes me wonder:

• Will it even happen?

• When will it be enforced?

• How long will it last?

If the countries affected by this executive order “take significant steps” to address U.S. national security concerns, Trump may think it appropriate to create a revision of some sort. We just don’t know what will happen, nor when, but it’s better than a war.

In addition, we still have not heard from the Supreme Court ruling on tariffs. Even if they rule against Trump’s tariffs, this won’t affect metals because Section 232 is based on national security.

All the tariff forecasts after Liberation Day about drastically slowing the economy and causing a recession were unfounded. The reasons are numerous but suffice it to say the tariffs were not nearly as high as Trump first announced. Our allies who were being targeted with tariffs learned they weren’t quite as bad as they originally thought and thus did not retaliate in kind. Inflation grew modestly with the tariffs.

In 2025, GDP grew approximately 2.5%, adjusted for inflation. This was close to what it was the two previous years. Trump wants to grow the economy much “hotter” this year. Afterall, it is an election year.

Tax cuts as a result of the One Big Beautiful Bill will start showing up in the first quarter as refunds on 2025 tax returns begin to arrive. The withholding tax has been reduced, and take-home pay is increasing for most workers. Even so, consumers will continue to complain about affordability.

Trump has appointed Kevin Warsh as Chairman of the Fed, to replace Jerome Powell in May 2026. After the approval process, Trump will want him to cut interest rates. This will not be so easy because the Chair only has one of the thirteen Federal Reserve votes. Trump also has a goal to loosen up credit to make it easier to buy homes and finance businesses.

All of this will help feed the dynamic and resilient beast. Eventually the beast will extract its toll on the economy. The national debt will rise much faster with the tax cuts and increased spending. In the past, the U.S. has attracted foreign countries to buy our debt because we have always been a stable nation with trusted allies. Unfortunately, the tariffs have diminished that level of trust and foreign countries are looking to diversify their investments away from the United States.

These policies and strategies will increase the national debt, increase interest rates to finance that debt, all of which will cause inflation to rise. In the long run, consumers suffer, and politicians who didn’t take responsibility when they should have will shift the blame like they always do.

INFLATION

It's still there
 

• The Consumer Price Index (CPI) for January will be released this morning. It is not forecasted for any significant change.

• Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, increased by 0.2% in October and by another 0.2% in November, the latest information announced on January 22nd. That amounted to annual PCE inflation of 2.8% in the 12 months through November, the same rate seen in September. Annual core PCE inflation, excluding volatile food and energy prices, was also 2.8%.

• The Producer Price Index for December “Core” producer prices – which excludes those typically volatile categories — rose 0.7% in December, the second largest month increase since mid-2022. However, wholesale margins that pushed December producer prices higher are not expected to keep growing and will most likely fall in the following month as indicated by past performance.

MANUFACTURING

Has the best feast started?

• The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) rose and factory activity unexpectedly accelerated to 52.8. It has been in contraction nearly three years, excluding January and February 2025. This is also the fastest pace since 2022. Growth was split, with nine out of the eighteen major manufacturing categories reporting growth in January, while eight reported contraction, and one reported no change.

• All major measures of activity rose in January, led by a nearly ten percentage-point increase in the new orders index to 57.1.  Even though new orders grew at the fastest pace in nearly four years, survey comments were full of complaints about tariffs and criticism of the Trump administration.

• Order books had already been weak heading into last year. Manufacturers had to rely on their order backlogs to keep production going: the order backlog index was in contraction territory for 39 consecutive months, but that streak ended in January with the index rising to 51.6.

• The employment index rose to 48.1 in January from 44.8, the highest level in a year – but remains below 50, signaling contraction, now for the 28th consecutive month.

Will the January trend continue to surprise?

• Core industrial manufacturing, which excludes volatile autos, posted a gain of 0.3% in December. In the past year, auto production (which is also highly sensitive to President Trump’s tariff policy) was down 2.8% while core manufacturing was up 2.4%. One of the strong areas of core production was the production of high-tech equipment, which has been a reliable tailwind recently due to investment in AI as well as the reshoring of semiconductor production, which increased 0.7% in December. High-tech manufacturing was up 10.9% in the past year, the fastest pace of any major category. The other strong part was the manufacturing of business equipment, up 10.0% in the past year, signaling reindustrialization in the U.S.

• U.S. non-defense capital goods new orders, excluding aircraft rose 0.5% in November, led by electrical equipment (+1.7%), fabricated metal products (+1.0%), and machinery (+0.5%).

• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.4% in November following strong gains in September and October. If unchanged in December, these shipments would be up at a 7.5% annualized rate in Q4 versus the Q3 average.  

• The National Federation of Independent Business Confidence Index fell slightly in January to 99.3 but remained above its 52-year average of 98. The Uncertainty Index rose seven points from December to 91. A rise in owners reporting uncertainty about whether it is a good time to expand their business was the primary driver of the rise in the Uncertainty Index.

• January job creation was 130,000 while all of 2025 was revised to only 181,000. The unemployment rate dropped to 4.3%.

• Car and light truck sales for January dropped slightly to 14.9 million annual units, due mainly to poor weather.

• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average, volumes for January were down 10%. 

CHINA

Manufacturing boom

The China 2025 trade surplus was a record $1.19 trillion. Chinese policies promote exports and discourage imports to create this. Over the past 20 years, China has become the most successful manufacturing dynamo the world has ever seen.

This boom in manufacturing has come at the expense of consumer spending. Domestic consumption in China is the lowest of all the leading worldwide economies. The lack of confidence in consumers is the main issue. The housing bust dropped these housing values by more than 40% in the last four years and is not expected to end for a decade. Housing is the largest percentage of savings for the Chinese. An aging population with a poor social safety net, a decrease in the birth rate and increasing unemployment is not a recipe for creating confidence and increasing consumer spending.

Is it any wonder why China’s consumer spending is now as poor as it was during the Covid-19 pandemic? According to Paul Krugman “The problem is that while China’s trade surplus may help stabilize the Chinese economy, it has destabilizing effects on other nations’ economies. So, China’s refusal to boost consumption creates a trade surplus trap and is setting up a global economic confrontation.”

The U.S. tariffs continue to diminish our ability to compete with China and the rest of the world. Aluminum in the U.S. is now about 36% higher than Europe and Japan and 40% higher than China. These higher prices make U.S. aluminum manufacturers less competitive worldwide and may create de-industrialization. The tariffs have made it more costly to build and make cars, trailers, planes, buildings and HVAC systems just to name just a few. In the long run, we all lose.

The January official PMI dropped to 49.3 from 50.1. The unofficial rate rose to 51.6.

METALS

2026 annual aluminum forecasts

In January each year, Marex, Reuters, and Harbor post their LME aluminum price forecasts. I am always anxious to see what they predict. I am also in awe of what it takes to analyze the data and make these forecasts. I am even more amazed by how accurate some of them are.

Ed Meir of Marex, who I subscribe to and religiously read his daily, monthly and annual reports, is both brilliant and very humble. Every year he posts his previous forecasts and his scorecard of how accurate he was. For 2025, Ed was the most accurate on his high and low aluminum forecasts. His delta on the average was -2.74% compared to Reuters delta of -2.28%. You can see the comparisons below. The 2026 annual average of LME aluminum for both Ed Meir and Harbor are both very close to $3250. Of course, nothing is guaranteed, and one really never knows.

While Section 232 aluminum tariffs benefit a few smelters, the manufacturers and consumers suffer. Since June when Trump put a 50% tariff on aluminum and steel, the Midwest premiums and the aluminum prices have gone up every month. The Midwest premium has gone from the low $0.40s in June to a current $1.04. LME has gone up $600 per metric ton during the same time.

UAE’s Emirates Global Aluminum and Century Aluminum have partnered to build the first new U.S. smelter in over 45 years, to produce 750,000 tons of prime aluminum per year. This will be built in Inola, OK, with construction starting by the end of 2026. The all-important electricity will come from a nuclear power plant that was never completed. The entire cost will be $4 billion, and the expected production of aluminum starting by the end of the decade. This will be two years after Trump is out of office and who knows what will happen then with the current tariffs. It would be interesting to know what the strategy is related to that investment. This wouldn’t be the first time that a major aluminum investment was announced only to be cancelled at a later time.

For February scrap prices, ALL nonferrous and ferrous prices rose. It’s been a very long time since that’s happened.

CLOSING

All in all, it appears that economic indicators are getting stronger. While the pedal to the metal tariffs have increased the metal pricing, we have not seen an increase in metal manufacturing yet.

This brings me to ask: Is metal manufacturing a trailing indicator, or have tariffs hurt manufacturing more than we think?

"Forecasts create the mirage that the future is knowable." - Peter Bernstein