Aluminum Midwest Premium: Tariffs, trade and demand

When Trump was in office, we saw the MWP fluctuate heavily, especially because of the Section 232 tariffs slapped on imported aluminum. Those tariffs were aimed at protecting U.S. aluminum producers, but they also hiked up prices, as foreign aluminum coming into the country was hit with additional costs. As a result, the premium surged to around 22c-23c/lb. Before that, it was usually sitting closer to 7c-10c/lb. Around the same time, aluminum cash prices on the LME were up around $2,000-$2,300/mt (90c-$1.04/lb). The premium settled down a bit in the years that followed, but it hasn’t dropped back to pre-tariff levels, thanks to lingering trade policies, tight supply chains, and the demand for aluminum in things like EVs and renewable energy.

Under Biden, the focus has been more on sustainability, reducing emissions, and strengthening trade ties, which has also impacted the market, but in different ways. While some tariffs remain, there’s been more of a push for agreements with major trading partners like the EU, relaxing certain import restrictions. That has brought a bit more stability to the premium, though it still moves up and down based on supply chain factors, fuel costs, and, of course, demand for aluminum in industries like automotive and construction, which are heavily affected by economic conditions and policy shifts.

Midwest Transaction Premium

In short, the MWP swings because it’s influenced by tariffs, trade policies, supply chain dynamics, and raw demand. It’s the local market’s way of capturing everything from international politics to logistical hiccups right here in the heartland.

The Midwest premium is key to understanding the Midwest transaction premium (MWTP), which is essentially the all-in price for buying aluminum in the U.S. Midwest. Think of it as the base price (from the global market) plus the MWP, which covers costs like transport and storage to get the aluminum here. When the MWP rises, it pushes up the total transaction price for aluminum in the region.

For the aluminum scrap market, the MWTP really sets the tone. When it’s high, scrap prices generally follow because scrap dealers and recyclers can charge more, reflecting that higher transaction premium. This affects everything from beverage cans to automotive aluminum, and it means that if the MWP sees a spike, say from supply chain disruptions, fuel price hikes, or policy changes, the scrap market feels it too. On the flip side, when the MWP cools down, scrap prices tend to ease up because recyclers have to adjust to what buyers are willing to pay.

What does this mean for the aluminum scrap market?

Looking ahead, the MWP is probably going to keep reflecting all these different pressures. With the current push for greener tech and the demand for aluminum only growing, it’s likely to stay high, especially if supply chains keep having issues or fuel costs go up again.

If the U.S. keeps leaning into domestic production to cut down on emissions, that could keep the premium up there too. On the other hand, if trade policies relax or if we find some new, steady supply sources, there might be some room for it to settle a bit. But with aluminum being so important in the shift to green energy, the premium probably won’t be dropping back to those lower, pre-tariff levels anytime soon.

In fact, in those scenarios that derive from the outcome of the U.S. presidential elections, it looks like whoever wins will implement their green initiatives or their in-house production, in which case, both would lead to rally in MWP.