US Midwest aluminium premium peaks after Russian invasion

Fastmarkets assessed the aluminium P1020A premium, ddp Midwest US, at 37-37.5 cents per lb on Friday, surpassing the previous all-time high of 36.5-37.5 cents per lb on Tuesday this week.

Since February 8, that benchmark aluminium premium has repeatedly set new highest-ever levels in Fastmarkets’ assessments, which began in 2003.

There was now a widespread expectation among market participants that Russian aluminium imports to the US would become subject to sanctions. This would make the already short domestic supply even shorter and had already driven the premium upward in the latest assessment. Russia is the world’s second-largest aluminium producer.

Extreme volatility in aluminium prices on the London Metal Exchange on Thursday subdued trade in the assessment period, but sellers raised their offers to cover the perceived risk.

“We have to add on some premium to cover the unknown developments from the invasion,” one trader said late on Thursday. Among these, even if sanctions did not stop Russian aluminium flowing to the US, sanctions on banks linked to Russian producers might limit their metal production, the source added.

A P1020 buyer whose price is based on the benchmark premium said late on Wednesday that prices were up for all aluminium products due to the worsening geopolitical tension.

The influential premium, widely known simply as “the Midwest premium,” factors into the pricing calculations for other aluminium premiums, including primary foundry alloy and extrusion billet, as well as a range of aluminium alloys. Both the P1020 premium and the LME price also influences aluminium scrap prices.

“We are at the mercy of the Midwest premium,” the source said. “We are too small to have any influence over it.”

The aluminium alloy maker said that he had raised all his prices, due to higher costs for all his aluminium metal and scrap inputs, linked to the geopolitical situation and the benchmark premium’s rise.

Even before Thursday’s assault on Ukraine, US President Joe Biden had threatened sanctions on Russia “far beyond” those seen before.

His remarks came on Tuesday in a press conference several hours after Fastmarkets’ latest P1020 assessment. The president described initial sanctions by the West, including US restraints on Russian ministers and a couple of large banks, as a “first tranche.”

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