Aluminum Scrap Markets
January 6, 2026
Midwest premiums: How high is high?
Written by Greg Wittbecker
Midwest premiums are approaching 93 cents per pound (¢/lb) over the London Metal Exchange (LME) cash settlement, up nearly 5¢/lb in a single month.
Consumers have now endured seven consecutive months of steady increases, rising from the high “50’s” in early June 2025.
The question now is when – or whether – this appreciation slows or reverses?
Conventional wisdom has long held that the Midwest premium needs to rise sufficiently to reflect the full cost of physical import replacement: LME + tariff costs + logistics.
Notwithstanding recent highs on the LME cash price, which mechanically inflate the tariff component of the calculation, the current Midwest premium appears to have overshot the direct replacement cost.
By my reckoning, full replacement on a duty-paid Midwest basis should be around 88-89¢lb. At today’s levels, the market is therefore exhibiting a normal premium roughly 4-5¢/lb above replacement. How is this possible?
Several thoughts:
• Liquidity remains extremely thin, particularly coming out of the holiday period. It does not take much volume to move the market.
• Spot premiums should not be over-interpreted relative to forward premiums. Consumers are not buying forward at these levels; what trading is occurring is short-term and driven by absolute necessity.
• The market has been discussing low U.S. inventories for months. What we are not seeing is a direct manifestation of how depleted those stocks have become.
• Although the Midwest premium is now well above direct tariff replacement cost, importers – Canadian or seaborne – are only slowly redirecting metal back to the US. Many may lack discretionary supply in the near term, and refilling the US pipeline could take several months.
• Scrap is not proving to be a short-term substitute for primary metal. Most consumers are already pushing practical limits on scrap incorporation. Metallurgists will need time to determine whether those limits can be extended further to meaningfully displace primary.
What breaks this trend?
The old adage applies: the cure for high prices is high prices. High Midwest premiums should eventually trigger the following responses:
• Importers will direct more metal to the US, provided it continues to offer a superior relative return versus Europe.
• Traders who are long the premium will begin taking profits, as returns become too attractive to leave on the table.
• Consumers will challenge their technical constraints, attempting to push more primary out of metal recipes in favor of scrap.
• The factor no one wants to discuss: DEMAND DESTRUCTION. Anecdotal reports are emerging that some aluminum sheet buyers are evaluating stainless and carbon steel alternatives in select applications. There is also growing concern that automotive platforms may revert to steel in new launches. While this does no materially impact near-term Midwest dynamics, it poses a real risk to forward premium structure.
• A political resolution that provides tariff relief for Canada. This is not a high-probability outcome until USMCA discussions are reopened and settled. However, Section 232 is ultimately a political construct and could unwind quickly if conditions were created to satisfy a Trump administration. The timing and likelihood such an outcome remain impossible to handicap.
Why this matters
In my private consulting work, I’ve received calls from increasingly nervous clients asking, “Should I being hedging the premium now?”
After months of steady increase, many are tempted to stop the bleeding by locking in coverage.
My advice has been consistent: at current levels, hedging the premium forward is not prudent. As difficult as it is to operate under these conditions, locking in today’s premium would mean committing to record-high levels.
