Brewers continue lobbying against higher Midwest premiums; S&P Global defends their methodology

Brewers and other canned drink makers in the U.S. are pushing the U.S. government to take a stand in determining aluminium price as the key benchmark for aluminium has not dropped much despite the lifting of tariffs. The Beer Institute supported House panel’s call for a Government Accountability Office study of aluminium markets and urging Congress to pass a bill known as the Aluminum Pricing Examination Act.

The APEX Act aims to give “exclusive jurisdiction over the setting of reference prices for aluminium premiums” to the Commodity Futures Trading Commission. Beverage companies are affected by S&P Global’s SPGI, +0.87% Midwest Premium, which is raising the cost of aluminium cans.

The heads of the Beer Institute and American Beverage Association criticised the Midwest Premium last month, saying it’s a “complicated, obscure pricing system.” Suppliers “charge the Midwest Premium, a price which reflects the full tariffed price of aluminium, even on aluminium not subject to the tariff,” they said. Molson Coors Brewing Co. and Pete Coors also criticised the pricing methods.

Beverage producers paid an additional US$458 million for aluminium costs from March 2018 to July 2019 because of tariffs. After the lifting of import tariffs on Canada and Mexico, Dow Jones Commodity Index Aluminum benchmark prices have come down this year. But Midwest premium has not shown a drop.

“Brewers of all sizes have seen their aluminum costs increase beyond what the tariffs warranted,” said the Beer Institute’s president and CEO, Jim McGreevy. “The APEX Act and the GAO study are critical in providing greater analysis and transparency to aluminium benchmarking.”

S&P Global has lobbied against the APEX Act, saying this will lead to “unrestricted government authority over commodity pricing.”

The bill is “not only misguided but unnecessary because it’s premised on a disproven claim of price manipulation that has already been refuted by the CFTC,” said Christopher Davis, America’s price reporting director for metals at S&P Global Platts.

“Independent price reporting agencies like S&P Global Platts are trusted for objective, transparent price reporting methodologies,” he added.

Davis added that any study would show the American market “has reacted to the imposition of U.S. import tariffs because the U.S. imports roughly 90% of the aluminium it consumes. Roughly 35% to 40% of that material remains subject to tariffs even after tariffs on Canada were removed.”

The fight over aluminium pricing is the outcome of increased use of aluminium cans over glass bottles in the beer industry. According to Beer Institute data, 64% of the beer produced and sold in the U.S.in 2018 came in cans.