Mid-West Premium

Last week the Aluminum US Midwest Premium broke through the $1/lb mark. For those of you more familiar with the metric system, that's $2,204.62/mt.

This means buying 1MT of aluminum delivered in the US now costs just over $5,400/mt. The premium is now at 70% of the LME 3-month aluminum price and represents over 40% of the total cost!

If you have an exposure to aluminum, an in-depth understanding of how the CME aluminum swaps work is a necessity.

Aluminum is one of the few metals markets where users have the ability to hedge their premium exposure.

By selling swaps if you are long the physical premium, or buying swaps if you are short, you can limit exposure to this extremely volatile market. When used correctly this allows producers, consumers, and traders to lock in margins on physical deals, something that simply isn't available in most other base metals.

We have already seen premiums quadruple year-over-year and with Trump's latest threat of 100% import duty on all Canadian products, volatility is unlikely to fade any time soon.

Like all hedging, trading premium swaps is not mandatory. But without properly understanding the tools at your disposal, profits become far more driven by luck than judgement.

If you have aluminum exposure and want to better understand premium risk and CME aluminum swaps, contact us: samuel.basi@perfectlyhedged.com