Midwest P1020 market and replacement costs converging

At the same time, buying duty-unpaid metal delivered to US ports under cost, insurance, and freight (CIF) terms, paying the 50% tariff and shipping it into the Midwest was around $0.95 per pound, opening a gap of 10 to 15 cents. That spread was unsustainable, and the market, always efficient, is demonstrating that pricing anomalies do not last long.

On March 13, premiums were marked down 3 cents to $1.0795 per pound, according to multiple sources. While the specific trades behind the move are unclear, there are several plausible explanations:

• Canadian exports to the US are beginning to pick up, as the premium covers costs and the netback versus Europe is stronger.
• Market participants report a substantial volume of LME warrants has been canceled in Kuala Lumpur, Malaysia. Some of that metal is likely headed to the US.
• Other traders ran the numbers, saw replacement was well below nominal offering prices and decided to sell into the market.

It’s not all one-way traffic

While the drop in Midwest prices will likely attract attention at the beginning of the current week, replacement costs are also moving higher due to developments in the Persian Gulf region.

Rotterdam duty-unpaid premiums have been marked up and are now trading around $355 per metric ton.

Freight to the US, versus Rotterdam warrants, adds roughly $20 per ton, putting US duty-unpaid replacement near $375 per ton.

At LME cash prices at the time of this writing of $3,490 per ton, duty-paid replacement rises to roughly $1.05 per pound.

In this context, the market appears rational. A 2- to 3- cent-per-pound spread between replacement and market pricing is reasonable.

Why this matters

We believe premiums were getting ahead of themselves when replacement was below $1.00 per pound. Now premiums appear more appropriately priced, with replacement having climbed to roughly $1.05 per pound, partly due to Gulf-related curtailments.

Related coverage in AMU this week highlights the seriousness of the Gulf supply risks. Limited alumina arrivals to Alba, Emirates Global Aluminium, and Qatalum could lead to additional disruptions. That scenario could push Midwest premiums higher.

The primary factor that could temper this outlook would be a significant surge in Canadian imports combined with the arrival of LME-sourced metal. These developments will need close monitoring over the next two weeks.

For now, the balance of risk appears tilted to the upside, particularly as replacement values have begun to align with quoted market premiums.