AMU: Negotiations heat up in US VAP market: Billet, PFA and wire rod premiums diverge

Most value-added-product (VAP) contracts are concluded on annual terms commencing Jan. 1 of each year. Pricing is done on a month-prior-to-month-of-shipment basis, meaning that January 2026 contracts are priced on the average of December 2025.

This means negotiations need to be finalized by the end of November for pricing to start in December.

Market discussions indicate the vast majority of contracts will be concluded on this timetable, though there are some exceptions.

Some buyers are reportedly concerned about volume carryovers from 2025 contracts and are hesitant to sign up for first-quarter deliveries. Instead, 2026 contracts may not commence until April 1, 2026.

Review of upcharges by product

Billet

Billet upcharges expressed over Midwest duty-paid P1020 premium have broadened since the September Aluminum Extruders Council (AEC) Management Meeting.

Whereas offers then were 20¢ per pound (¢/lb) or slightly higher, more recent offers have been seen in the 13¢-17¢/lb range. These offers reflect a higher underlying Midwest P1020 premium.

In mid-September, the Midwest duty-paid premiums as reported by CRU Analysis were around 75.5¢/lb. Today, that number is 88.5¢/lb. That’s a 13¢/lb increase to the total premium against the London Metal Exchange (LME) cash price.

While mid-September saw total premiums versus LME as 95.5¢/lb (75.5¢/lb Midwest premium + 20¢/lb billet upcharge), billet upcharge offers today at 13¢-17¢/lb represent total premiums over LME of $1.01/lb to $1.055/lb. Seaborne importers can absorb the billet upcharge and still achieve a higher total premium.

Domestic billet producers, however, continue to price at an upcharge to the Midwest transaction price, with billet upcharge offers still seen at 18¢-20¢/lb.

They are banking on their shorter lead times and delivery reliability to justify the premium.

Some non-casting extruders may concede that premium, preferring the assurance of North American-origin metal. Others will simply opt for the lower price and accept longer lead times.

Primary foundry alloy (PFA)

PFA upcharges are poised for appreciation for 2026, closely mirroring billet trends.

Indications are import offers are 12¢-16¢/lb, while Canadian-origin metal is being quoted 17¢-19¢/lb over the Midwest premium.

North American PFA is a complicated market, as much of its demand is concentrated in Mexico, where no import duty exists for primary metal. It is, therefore, a duty-unpaid market on paper.

Canadian producers have fought to maintain duty-paid quotations, arguing Mexican wheelmakers must comply with United States-Mexico-Canada Agreement (USMCA) rules of origin to avoid penalties under the International Emergency Economic Powers Act (IEEPA), which imposes duties of 25% when noncompliant wheels are imported into the US.

The argument has gained traction. Major wheelmakers now comply with the 75% minimum North American content for automotives under USMCA.

Although enforcement was relatively lax during the Covid-19 pandemic, sources indicate U.S. Customs and Border Protection has increased audits and scrutiny of original equipment manufacturer (OEM) certifications, particularly regarding the traceability of metal origin.

Mexican wheelmakers have nonetheless satisfied USMCA requirement by using high-grade, processed post-consumer wheel scrap generated from the US.

This product enjoys a well-earned reputation for quality and remains competitively well-priced, selling at a discount to the Midwest transaction price.

Industry sources estimate this scrap can replace roughly 25% of their consumption needs that would otherwise be met with primary 356 alloy.

Beyond USMCA compliance, Mexican wheelmakers continue to buy that remaining 25% of their requirements from seaborne imports being bought on a duty-unpaid basis. Upcharges for this metal are reported in the 12¢-14¢/lb range.

Wire rod

Wire rod remains red hot in the market.

Upcharges for 2026 are approaching 30¢/lb over the Midwest premium. Major wire and cable OEMs are frustrated by the lack of supply options, as only two primary producers in North America and two secondary producers – one being Southwire – are making rod.

Production is running at maximum capacity, and internal demand from secondary producers continues to rise steadily, reducing discretionary supply for third-party sales.

This tight domestic situation has opened opportunities for Vedanta (India) to increase market share and capture some of these elevated premiums.

Sheet ingot

Sheet ingot has become difficult to price, largely because most sheet mills either buy cheap scrap to cast in-house or have their third-party purchases locked under multi-year deals.

Secondary producers such as Scepter and Matalco have secured multi-year tolling agreements with can sheet mills that control beverage can or automotive scrap under closed-loop recycling programs.

This has enabled the sheet mills to toll for the one grade of sheet ingot that has traditionally been the toughest for them to cast — the 5000 series.

The combination of self-casting and tolling has therefore made it impossible to talk about a spot market in sheet ingot, because there really isn’t one.

Sheet ingot upcharges over Midwest duty-paid P1020 are basically flat from 2024 levels, as supply of suitable scrap is both tight and very well priced.

Why this matters

VAP revenues boost North American smelters’ bottom line

VAP upcharges are extremely important to North American producers’ profitability. This was demonstrated by Alcoa’s recent statement that it plans to increase output at its Bécancour VAP smelter in Quebec, Canada, by 50% compared to 2024 levels.

We suspect once Century’s Mt. Holly smelter in South Carolina is fully ramped by mid-2026, the emphasis will be on VAP output from the incremental 50,000 metric tons per year of additional capacity.

VAP delivers incremental margin to North American smelters, most of which are not necessarily the lowest-cost producers on the CRU Cost Curve for site costs.

The regional duty-paid P1020 premium, combined with the VAP upcharges for billet, PFA, and rod, enables these smelters to drive down their business costs to world-class levels.

Business costs are derived by taking the revenue from the regional premium and VAP upcharges and using it as a credit against site costs.

(A more detailed description of site and business cost modeling can be obtained from CRU Analysis by referencing the proprietary CRU Asset Models.)

Higher VAP upcharges are problematic for some OEMs

Higher billet upcharges raise costs to non-casting extruders, who will in turn attempt to pass these on to their extrusion customers.

Their challenge will be competing head-to-head with self-casting extruders that may, or may not, choose to price their billet at the margin of third-party replacement cost.

This dynamic raises an ongoing question: Why don’t more non-casting extruders consider building their own casthouses?

Often, it’s a matter of scale — some extruders may not be large enough to justify the sunk cost. There is also some fear of the unknown.

Even when extruders are adept at pushing billet through presses, they are not necessarily equipped to manage molten metal and produce billet themselves.

At present, we know of no concrete plans by a North American non-casting extruder to consider building a casthouse in the face of these higher billet upcharges. Meanwhile, new secondary capacity from EGA/Spectro and AdaptIQ continues to come online, leaving non-casting extruders standing pat.

Higher PFA upcharges appear to be triggering additional efforts to use more crushed wheel scrap as feedstock.

The strong wire rod upcharges have not yet spurred any wire and cable OEMs to add rod capacity (yet!), but it may only be a matter of time before this market draws more serious capital investment. These upcharges should be attracting independent funding interest.

Sheet ingot remains the one VAP segment where sheet mills are in strong shape. Scrap availability and melt mix will be their largest concern in 2026 – specifically, having enough capacity to consume it. This has prompted calls for a limited export ban on UBC and certain other high-grade scrap streams.

We will revisit that topic on coming Pulse articles.