Ali Premiums: What Happens Next?
Over the past week, ๐จ.๐ฆ. ๐ฎ๐น๐๐บ๐ถ๐ป๐๐บ ๐ฝ๐ฟ๐ฒ๐บ๐ถ๐๐บ๐ ๐ต๐ฎ๐๐ฒ ๐๐๐ฟ๐ด๐ฒ๐ฑ ๐๐ผ ~๐ฐ๐ฌ๐ฐ/๐น๐ฏ ($๐ด๐ด๐ฎ/๐บ๐) for spot-delivered metal. Thatโs ๐ฏ๐ฐ% ๐ผ๐ณ ๐๐ต๐ฒ ๐๐ ๐ ๐ฏ๐ ๐ฝ๐ฟ๐ถ๐ฐ๐ฒ ($๐ฎ,๐ฒ๐ฏ๐ฌ/๐บ๐)โa massive jump from the ~24c/lb ($529/mt) level before the tariffs were announced. ๐๐ฉ๐ฐ ๐ด๐ข๐ช๐ฅ ๐ต๐ข๐ณ๐ช๐ง๐ง๐ด ๐ข๐ณ๐ฆ๐ฏโ๐ต ๐ช๐ฏ๐ง๐ญ๐ข๐ต๐ช๐ฐ๐ฏ๐ข๐ณ๐บ ๐ข๐จ๐ข๐ช๐ฏ?
For those ๐๐ต๐ผ๐ฟ๐ ๐๐ต๐ฒ ๐ฎ๐น๐๐บ๐ถ๐ป๐๐บ ๐ฝ๐ฟ๐ฒ๐บ๐ถ๐๐บโvia ๐๐ ๐ ๐๐๐ฎ๐ฝ๐ or ๐ณ๐ถ๐
๐ฒ๐ฑ-๐ฝ๐ฟ๐ฒ๐บ๐ถ๐๐บ ๐ฝ๐ต๐๐๐ถ๐ฐ๐ฎ๐น ๐๐ฎ๐น๐ฒ๐โthis sudden spike means ๐ฏ๐ถ๐ด ๐น๐ผ๐๐๐ฒ๐. Meanwhile, those long CME swaps or holding physical stock at a fixed premium are now sitting on solid gains.
๐๐๐ ๐๐ต๐ฎ๐ ๐ต๐ฎ๐ฝ๐ฝ๐ฒ๐ป๐ ๐ถ๐ณ ๐๐ฎ๐ฟ๐ถ๐ณ๐ณ๐ ๐ต๐ถ๐ ๐ผ๐๐ต๐ฒ๐ฟ ๐บ๐ฒ๐๐ฎ๐น๐ ๐น๐ถ๐ธ๐ฒ ๐๐ถ๐ป๐ฐ ๐ฎ๐ป๐ฑ ๐ฐ๐ผ๐ฝ๐ฝ๐ฒ๐ฟ?
๐จ A Big Problem for Fixed-Premium Contracts ๐จ
Currently, U.S. physical contracts for ๐ฐ๐ผ๐ฝ๐ฝ๐ฒ๐ฟ, ๐๐ถ๐ป๐ฐ, ๐ฎ๐ป๐ฑ ๐น๐ฒ๐ฎ๐ฑ are mostly booked at fixed premiumsโnegotiated annually during LME Week. By contrast, aluminum contracts typically use floating-premium formulas (adjusted monthly based on Platts).
This creates a huge difference in risk exposure:
โ
Aluminum traders can stay neutral since rising purchase premiums are matched by higher sales premiums.
โ Zinc, copper, and lead traders locked into fixed-premium sales contracts could face ๐บ๐ฎ๐๐๐ถ๐๐ฒ ๐น๐ผ๐๐๐ฒ๐ if import costs spike overnight.
For example:
๐ If a trader sold a U.S. zinc contract at 10c/lb ($220/mt) for Jan-Dec 2025, expecting to cover it at a lower premiumโฆ
๐ But import costs rise 25% (based on a 3M Zinc price of $2,870/mt)โฆ
๐ Zinc premiums could jump $700/mt overnight, wiping out profits and leaving traders with huge losses on uncovered positions.
๐ก Whatโs Next? A Major Shift in Domestic US Physical Trading?
Nobody knows if these tariffs will be fully implemented or how long theyโll last. But if they go through, we could see ๐บ๐ฎ๐ท๐ผ๐ฟ ๐ฐ๐ต๐ฎ๐ป๐ด๐ฒ๐ ๐ถ๐ป ๐จ.๐ฆ. ๐บ๐ฒ๐๐ฎ๐น๐ ๐ฐ๐ผ๐ป๐๐ฟ๐ฎ๐ฐ๐๐:
โ
A shift from long-term fixed-premium deals to short-term (1โ2 month) agreements to reduce exposure.
โ
Attempts to renegotiate existing fixed-premium sales contracts to avoid unsustainable losses.
โ
A potential push for premium swap contracts for zinc, copper, and leadโthough this would require a major industry shift to benchmark-based pricing.
