US ALUMINUM: Historically wide spreads in prime scrap market change 2026 contract behavior

This report is part of a series on impactful trends in the US aluminum market based on S&P Global Energy pricing, news, and analytics.

Historically wide spreads on certain primary grades of scrap, driven by record high Midwest Transaction Premiums, ongoing tariff uncertainty, and shifting supply-demand dynamics, are impacting contract negotiations in the US aluminum scrap industry.

Due to continued volatility, scrap dealers and mill officials are cautiously navigating 2026 contract negotiations, with most market participants hesitant to commit to long-term contracts at current discount levels. Instead, the market trend this year has been to book more spot and quarterly deals to mitigate risk and stay agile in anticipation of potential policy changes and continued supply chain disruptions.

The market finished 2025 with plentiful scrap conditions and multiple mills said they were full on scrap needs as the year turned. Mills typically prefer not to be exposed to pricing volatility, despite the deep discounts to the Midwest Transaction premium, the mechanism used to price most prime scrap deals, market sources said. Also, although the spreads are wider, total costs of scrap remain elevated.

For instance, Platts data showed UBCs this January averaged 111.25 cents/lb and were 46% of MWT, while last year they averaged 111.4 cents/lb and were 79% of the total cost. Meanwhile, 6063 new bare total costs were $193.02 or 51 cents below MWT, while last January total costs averaged $140.82 cents/lb or 14.3 cents below.

But mills are wary of being locked into higher prices if the scrap dynamics shift, making the trend toward shorter-term agreements. "There is no incentive to do anything other than spot deals or quarterly," said one scrap dealer of the mill buyers. "If scrap is tight they want to lock in, but like it is now with so much scrap, they don't want to lock in."

Another scrap dealer said historically the mills would lock in all their scrap needs on annual contracts so that the feedstock was captured and they could forget about it. But as spreads get wider and more scrap imports flow into the US, mills are more likely to book on an as-needed basis.

"We booked less volume on [long-term fixed] spreads and did more monthly and quarterly fixed negotiations," a mill buyer said, adding that spreads have widened even more so in March (the current active buying month) than in Jan-Feb. "When we go into the spot market—which we have—you can name your price," he said.

Another mill said they have locked in less on a fixed percentage as well, and have had to be more creative in how they price their contracts.

And despite a push from scrap yards to tighten up legislation around duty-free scrap imports, the mills are hesitant to curb their import appetite, as high premiums and raw material costs make scrap an attractive input due to cost savings.

"It has an appeal of cost reduction and a low carbon score to incentivize people," said a third scrap dealer of import scrap material.

Tariff risk causes sale-side woes

The scrap dealer perspective is mixed, with some wanting to ensure a customer base and avoid competing with imports, while others are unwilling to lock in long-term contracts at current steep discounts to MWT. The risk of spreads narrowing, especially if tariffs are reduced or removed, makes long-term commitments unattractive.

"The scrap guys want to assure we have a home—I don't think the tariffs are coming off and the premiums are going to fall so I am better off having a home," said the first scrap dealer.

"Three months ago I said there was a good chance it goes away but now no," said a fourth scrap dealer.

In contrast, a large scrap processor said, "Almost all processor participants are fearful of waking up one morning and seeing the headline that the administration has rescinded or reduced the aluminum tariffs. Given that ever-pending fear, the processor industry has been focused on managing a neutral position relative to purchases and sales."

"I can't supply at these wide spreads," the third dealer said. "When [there is some change to the tariff structure], will people still honor the orders, can they afford to?"

"How much are you going to get hurt is the bottom line," another large processor said. "If you lock in UBCs at 50% and it goes to 55% and your competitor didn't lock in, then they would have a 10-cent advantage."

UBC Q1 contracts at 50-55% of MWT

For UBCs, some of the mills are said to have locked in contracts last year around typical contract mating season, preferring to have a baseload in place, but only Q1 was heard to have been settled.

UBC deals for Q1 2026 were reported at 50%-55%, with the lower end of the range heard more recently.

"I got a bid at 51% today," one scrap dealer said, while a trader said he was able to book UBCs at 50%.

"I've had some tell me they never locked in unless the price started with a 7," the trader said of UBC sellers. "The same guys didn't lock in at 80% back in 2024."

According to Platts data, UBC discounts over the last 10 years were around 65% of MWT.

In contrast, multiple sellers in the last week reported current spot indications at 46-48% of MWT. This equates to a range of 117.25-122.25 cents/lb based on Jan. 29 data. Platts, part of S&P Global Energy, spot assessment for UBCs rose to $1.18-$1.20 in the week ended Jan. 30, up from $1.09-$1.11/lb from earlier in January.

"I think it's a crap shoot," said one trader of the UBC deals that were penned on a long-term basis. "I don't think the buyer or seller know whether it's a good deal or not."

Supply chain disruptions, shifting consumption patterns affect demand

Multiple fires at aluminum giant Novelis' Oswego rolling mill in 2026 caused operational issues that created supply chain bottlenecks, reduced scrap demand from major consumers, and contributed to a glut in certain grades of scrap.

"More consumption and demand are out the window when Novelis keeps catching on fire," the fourth dealer said. "Wide spreads are what is keeping the market in balance."

Market sources said the plant fires created a significant disruption in the scrap market as Novelis' extended shutdown meant it was not consuming anywhere near the 25 million lbs of scrap per month it would typically consume.

"There is still this nearby glut of scrap. It has narrowed a little coming into January...but not corrected to the extent it should have," the trader said. "I think it will take Novelis to come back in for scrap to tighten up."

The fourth scrap dealer said this could be happening, as he saw a bid from Novelis for mill-grade MLCCs, but said it was a "terrible" [low] number.

In addition, mills and extruders are prioritizing higher-margin products, such as autobody coil, over beverage cansheet, which further shifts supply flows. They are leveraging closed-loop recycling with their partners to do so, which has depressed demand for 6000-series scrap.

"There is a lot more money in autobody so I think the mills want to sell that [coil]. With that comes closed loop from Arconic, Constellium, Novelis. So they are focusing on that and not needing to book a lot of UBCs," the fourth dealer said.

Cansheet scrap has been readily available due to this lack of demand, with only certain grades such as 5052 new bare scrap, seeing strength.

In the short term, buyers and sellers expect wide spreads to persist as MWT prices remain elevated and scrap demand remains weak. Neither side wants to feel disadvantaged as the year presses on and policy uncertainty remains, so both sides of the market agree that flexibility is paramount as the market prioritizes risk management and adapts to the ongoing volatility.