Aluminium (aluminum) premium explained: Midwest, Rotterdam and Japan
The LME aluminium price is only part of what a buyer pays. The rest is a regional premium that can move on its own. Here is what the premium is, how the main regional ones differ, who publishes them and how to put them in a budget.
What is the aluminium premium?
The LME aluminium price is the exchange reference for primary aluminium delivered against LME warehouse warrants. Almost nobody buys metal at exactly that price at their own gate. Physical buyers pay the LME price plus a regional premium. The premium covers freight and handling to the delivery location, import duties, storage and financing costs, and the local balance of supply and demand. It is usually quoted in US dollars per tonne; the US premium is also quoted in US cents per pound. The same metal is called aluminum in North America and aluminium elsewhere, and the premium works the same way under either name.
Delivered price: LME plus premium plus product premium
Delivered price = LME price + regional premium + product premium + delivery
The product premium covers the extra cost of a form beyond standard ingot, such as billet, extrusion ingot, slab or foundry alloy. The figures below are illustrative, not market prices.
| Part of the price | Per tonne |
|---|---|
| LME aluminium price | $2,500 |
| Regional premium | $300 |
| Product premium (for example extrusion billet) | $150 |
| Price before delivery | $2,950 |
In this example the premiums are 15% of the price, and they can move without the LME price moving at all. That is why a budget that tracks only the LME price can be wrong even when the LME price behaves.
The main regional premiums
| Region | What it is | What moves it |
|---|---|---|
| US Midwest | Duty-paid premium for metal delivered to the US Midwest, quoted in cents per pound | Import duties and tariffs, freight, and how much of US demand has to be imported |
| Europe (Rotterdam) | Premium for metal delivered to Rotterdam, assessed duty-paid and duty-unpaid | EU import duties, freight, stocks, and smelter output in Europe |
| Japan | Premium negotiated each quarter between producers and Japanese buyers, a widely used reference for Asia | Supply and demand in Asia, and the producers' alternative sales elsewhere |
Tariffs matter most in the US. An import tariff on aluminium goes straight into the Midwest premium, which is why that premium can move far more than the LME price on a policy announcement.
Who publishes the premiums
Price reporting agencies such as S&P Global Platts, Fastmarkets and Argus assess the regional premiums, and each publishes how it does so. If a contract refers to a premium, it should name the assessment. CME also lists futures on some regional premiums, so a buyer can hedge the premium separately from the LME price.
Why the premium matters for budgets and PPV
A standard cost that fixes only the LME part misses every premium move, and the gap lands in purchase price variance. Build the standard from the benchmark and the premium as two lines, and report the variance the same way. The purchase price variance guide shows how to split a variance into market, timing and premium. MetalAlert's probabilities are about the LME price, not the premium; see the aluminium price forecast for the LME side.
How to budget the premium
- Budget it separately. One line for the LME price, one for the premium, one for the product premium.
- Use scenarios. Test the premium at higher and lower levels, as you would the LME price.
- Know your contract formula. LME plus a fixed premium makes the variance traceable to the benchmark; a floating premium moves it to the premium.
- Compare quotes on the same delivery terms. A premium means little without the delivery point and duty status.
Common questions
What is the Midwest premium for aluminium?
It is the premium over the LME aluminium price that a US buyer pays for metal delivered to the US Midwest, duty paid. It is usually quoted in US cents per pound and reflects import duties and tariffs, freight and the share of US demand that has to be imported.
What is the Rotterdam aluminium premium?
It is the premium over the LME price for aluminium delivered to Rotterdam, the main European delivery point, assessed both duty-paid and duty-unpaid. It reflects EU import duties, freight, stocks and European smelter output.
Is the premium included in the LME aluminium price?
No. The LME price is the exchange reference. Most physical purchases add a regional premium and sometimes a product premium and delivery charges, so what a buyer pays is higher than the LME price.
Why can the aluminium premium move when the LME price does not?
Because it is set by local factors that the LME price does not capture: import duties and tariffs, freight, regional stocks and local supply and demand. A tariff change can move a regional premium far more than the LME price.
Can you hedge the aluminium premium?
In some regions, yes. CME lists futures on some regional aluminium premiums, so the premium can be hedged separately from the LME price. Whether that suits a business depends on its volumes and its contract formulas.
Related
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