Regional Metal Premiums and the Midwest Premium
The LME futures price for aluminum is a global benchmark, but nobody actually pays exactly that price — buyers pay the benchmark plus a regional premium covering local freight, tariffs, and physical availability, like the well-known US Midwest Premium.
Prerequisites: LME Warehouse Queues and Load-Out Rules
The LME cash price for aluminum tells you the global benchmark cost of the metal itself, but a factory in Ohio buying physical aluminum doesn't pay that price alone — it pays the LME price plus a regional premium that covers local freight, import duties, warehousing, and whatever local supply-demand tightness exists in that specific delivery region. In the United States, this add-on is called the Midwest Premium, and it moves independently of the LME price itself, sometimes dramatically.
The all-in price a real buyer pays for physical metal is the exchange benchmark plus a regional premium, and the premium — not the benchmark — is often what actually reflects local supply tightness, tariffs, or logistics bottlenecks, so two buyers in different countries can face very different total costs for identical metal even when the LME price they both reference is unchanged.
Worked example
The LME aluminum cash price is $2,300/tonne. A US Midwest buyer also pays a Midwest Premium of $450/tonne, for an all-in cost of $2,750/tonne — while a buyer in Rotterdam pays the LME price plus a much smaller European premium of $150/tonne, or $2,450/tonne all-in. If a new US tariff on imported aluminum pushes the Midwest Premium up to $600/tonne, the US buyer's cost rises even though the globally quoted LME price hasn't moved at all.
Because the premium itself now trades as a futures contract, traders can hedge or speculate on it separately from the underlying metal price — a position that only makes money if the gap between regions changes, regardless of which direction aluminum itself moves.
Further reading
- CME Group, Aluminum Midwest Premium Futures Contract Specifications