The Democrats' sweep of the US House of Representatives and the Senate in the midterm elections on 3 November has raised market participants' expectations of a trade deal with Canada that could include tariff relief on aluminum imports.
A carve-out for top primary aluminum supplier Canada could trigger a reduction in the Midwest premium, which has reached unprecedented heights as a result of tariffs and caused price disruptions in upstream and downstream markets.
The Midwest premium, which encompasses all associated costs to deliver primary aluminum into the US Midwest, surged by 406pc from the start of 2025 to an all-time high of $1.19/lb in late May of this year before sliding back to $1.12/lb as of 4 November, according to Argus data. While ex-China supply risks from the US-Iran war accelerated the increase, tariffs have been the driving factor.
Any US-Canada trade deal would remain up to the discretion of US president Donald Trump, who unilaterally enacted the 50pc import tariffs under section 232 authority of the 1974 Trade Act. While a Democrat-controlled Congress cannot supersede Trump in revoking the punitive duties, it could exert pressure on the White House to come to the negotiation table and ease trade tensions between the countries.
Market participants said any decrease in the Midwest premium as a result of trade negotiations would likely be measured, through gradual declines over the course of weeks to months rather than through sharp, successive reductions. Even if negotiations brought some relief to tariffs that might not take the form of an instant cessation.
And even if the tariff on Canadian material is reduced, the premium will retain strong support from tariff impacts on aluminum from other origins, altered trade flows and tighter global supply.
The US remains overwhelmingly dependent on primary aluminum imports, which account for more than 80pc of domestic consumption, according to industry estimates. Canada, which accounted for 74pc of US imports from 2020-24, now comprises just 62pc of shipments into the US as Canadian smelters have begun to divert more metal to Europe because of the tariffs.
Aluminum buyers and sellers got a preview of how the market potentially would react to a US-Canada trade deal in late August, when Trump floated an agreement that could have included a 25pc tariff-rate cut. Activity in upstream markets came to a standstill, while scrap brokers that were unhedged against the Midwest premium adjusted prices immediately to account for the perceived decline.
But index-referenced premiums remained relatively steady in the ensuing days, as underlying supply constraints and no firm signals that a deal would come to pass prevented sizeable decreases.
Traders have destocked significant amounts of primary aluminum and are hesitant to bring in additional metal out of concern of holding higher-priced inventories if a lower tariff rate for Canada does come to pass. And consumers continue to buy on an as-needed basis to avoid being caught with more expensive stockpiles by year end.
Market participants also voiced skepticism about whether a trade deal would last, saying Trump could ultimately change his mind and either throw out an agreement or impose new tariffs through another mechanism at his disposal.
