Challenging Market Conditions Limit Low-Carbon Aluminium Premium

Aluminium

Demand for low-carbon aluminium in Europe has grown steadily in recent years, with consumers willing to pay a premium for sustainable products like Hydro's Reduxa, Alcoa's EcoLum, and Rusal's Allow, which have a carbon footprint of 4t or less per tonne of aluminium. Despite this, tough market conditions have capped how much more buyers are willing to pay over regional premiums.

During the summer, some low-carbon aluminium was offered with no premium over standard aluminium, as overall demand in the aluminium sector remained weak. The upcharge for low-carbon aluminium continues to hover at lower levels, a result of sluggish demand across various industries, including automotive, construction, and packaging. This is compounded by the fact that the European premium for standard aluminium remains relatively high, driven by tight global supply and a shift away from Russian metal.

While the current market dynamics are challenging, the long-term outlook for low-carbon aluminium is optimistic. In recent years, manufacturers have increasingly prioritized sustainability, with life-cycle assessments and specific carbon footprint goals driving demand in industries like automotive, packaging, and construction. The introduction of market regulations, such as the EU’s carbon border adjustment mechanism, is expected to further accelerate demand for low-carbon aluminium, pushing companies to emphasize sustainability even more.

However, a liquid, widely available spot market for low-carbon aluminium is still far off. Most of the material is supplied to select customers through contracts, though some is sold on the broader market during slower periods, such as the summer months.

To secure its place in the broader market, low-carbon aluminium will need to solidify its definition and standardize how producers calculate carbon footprints, taking into account the raw materials they use. Investments in new technologies, such as inert anodes and carbon capture projects, are expected to lower emissions further, ensuring that low-carbon aluminium continues to evolve and meet future sustainability standards.