Aluminum at epicenter of US reshoring efforts with renewable energy twist

A new aluminum smelter could be constructed in the US for the first time in over 40 years, thanks to the prospects of a potential $500-million Department of Energy grant and access to renewable energy.

The grant opportunity for aluminum producer Century Aluminum was made available through a larger $6-billion DOE funding package unveiled in March to bolster and decarbonize the country's energy-intensive industrial sector, which included several investments for proposed steel, aluminum and copper projects.

If the smelter project comes to fruition, it would be a monumental reversal for the US primary aluminum industry that has seen three smelters shut down since 2020, leaving only four smelters in operation from more than 20 in the 1990s. The four remaining smelters have a cumulative nameplate capacity of about 795,000 mt/year, a far cry from the total US primary aluminum production of over 3.6 million mt in 2000.

The DOE's massive grant opportunity exemplifies the US government's growing commitment in finding new ways to boost the competitiveness of domestically produced metals, according to Nick Trickett, senior analyst for metals and mining at S&P Global Commodity Insights.

"The grant is hugely helpful for a project like [the new aluminum smelter] and assures private capital there's enough money in hand to deal with project works, any potential delays, and other risks with commercializing newer intellectual property," Trickett said.

Charles Johnson, CEO of the US-based Aluminum Association, said the funding complements other recent US legislation that affirms the domestic aluminum sector's standing at the forefront of a sustainable industrial future.

"We're very gratified by what we have seen from the [Biden] administration through the Inflation Reduction Act and other steps that they have taken, not just to bolster American manufacturing in general, but to bolster clean, low-carbon manufacturing in the United States," Johnson told Commodity Insights during a press event at the association's annual spring meeting this year. "Our industry has been at the forefront of those efforts... so we fit squarely within the crosshairs of this policy area."

Environmental groups back clean smelter project

In January, Magnitude 7 Metals told its employees that it would indefinitely shut down its coal-powered aluminum smelter in New Madrid, Missouri.

Industry-focused environmental advocacy groups lamented the news, a seemingly contradictory response given the environmental hazards associated with the facility. They instead argued that the closure was a critical loss that could have been prevented if assistance was made available to transition the facility to cheaper, more sustainable renewable power.

The same groups later praised the US' move to fund Century Aluminum's smelter and support its access to renewable power. The groups included Industrious Labs, a clean industry transition advocacy group.

"It is kind of funny for a proposed big new industrial facility to be getting applause from climate groups," said Annie Sartor, aluminum decarbonization campaign leader for Industrious Labs, in an interview with Commodity Insights.

Sartor explained that Industrious Labs acknowledges the value of domestic manufacturing jobs and views renewable energy as one viable solution to responsibly maintain the nation's industrial base. A cleaner domestic industry would also reduce the US' reliance on imports made with higher carbon emissions from certain countries.

Now, it is true that the US aluminum sector has adapted and evolved with the closure of smelters over the last several decades, with companies investing in less energy-intensive secondary and downstream aluminum production that makes greater use of recycled scrap. Midstream and downstream aluminum production now represents around 98% of all US aluminum jobs, according to the Aluminum Association.

While many agree that scrap-based production represents a critical decarbonization pathway for the global aluminum industry, more primary aluminum smelting capacity will still be required to meet the surge in global aluminum demand, which the International Aluminium Institute projects will reach 119.5 million mt in 2030 from 86.2 million mt in 2020.

A group of US businesses, including some of the world's largest automakers and beverage companies, even lobbied the DOE in 2023 to increase federal investment in domestic clean primary aluminum production to ensure that their future aluminum needs are met .

"We need to have primary aluminum production here to meet our needs, and we need to clean it up," Sartor said.

Potential shift in government's role for industrial policy

The DOE funding could signal a shift in the US government's perspective regarding its role in the nation's industrial future -- a role that has often relied heavily on trade enforcement to protect steel and aluminum jobs, and the communities that rely on them.

Different trade mechanisms have yielded varied results. For example, in its most heavy-handed approach yet, the US in 2018 imposed a 10% tariff on all aluminum imports in a bid to protect its dwindling primary aluminum industry. Two idled aluminum smelters, both largely powered by coal, restarted production in response to the move but have since closed again.

Sartor said coal-powered industrial facilities can no longer compete globally with facilities that are powered by cheaper renewable energy.

"The problem is that US states, where coal used to be the cheapest, have not invested in the big builds of renewables that they need in order to retain an industry like primary aluminum production," Sartor said. "The winds are shifting on electricity and these regions that have been so reliant on coal or gas for decades are going to need to build renewables in order to retain the industry that has made up their economies."

The DOE's funding demonstrates a new approach to protect the US industrial base that moves beyond trade defenses: seeking an expanded scope of support to establish a new era of cleaner domestic manufacturing.

However, it remains to be seen whether the landmark funding package represents a one-time commitment or the start of a long-term industrial strategy.

"The Biden administration's willingness to spend builds on what began with Trump's metals tariffs," Trickett said. "It seems likelier than not that the US government will make more liberal use of these grants in the future, though the salience of decarbonization may vary depending on the administration."

"However, this approach will only be effective for industries that are trade protected, can competitively beat imports on price and/or quality, and don't depend on the completion of one or more other projects to source feedstock or energy and find a willing buyer or offtaker," he added.

Renewable energy infrastructure still needed

Companies such as Norway-based aluminum producer Norsk Hydro have already moved to implement sustainable practices and technologies at their US facilities to increase competitiveness. Duncan Pitchford, the company's head of its aluminum metal division in the US, believes that recent legislation and funding will promote these trends further across the industry, but the next steps must include investment in renewable power.

"From our perspective, additional investment in energy production in the US is probably the one piece of the pie that we haven't seen a lot of attention just yet, and I think it's probably one of the things that's holding back further investment in things like primary production of aluminum in the US," Pitchford said in an interview with Commodity Insights.

The Aluminum Association's Johnson said an industrial buildout with renewable energy access will need to be a collaborative effort.

"There is no strategic first step that must happen before all other things occur," he said. "This takes an aggressive partnership between industry, the government, power suppliers and now new voices."

"[The aluminum industry] is doing its part and sending a strong signal to the energy sector, which we have always done through our advocacy for aggressive US energy policy," he added.

The Aluminum Association released its North American aluminum decarbonization roadmap report in May, highlighting pathways that industry stakeholders and government policymakers can take to approach net-zero carbon emission targets in the aluminum sector by 2050.

The evolution of the low-carbon aluminum market

Commodity Insights launched the Platts US Low-Carbon Aluminum Premium in January to reflect any differential achieved for the spot trade of primary aluminum with total certified emissions of 4 mtCO2e per metric ton of aluminum or less. The assessment covers direct and indirect emissions associated with aluminum smelting, typically considered by market participants as scope 1 and 2 emissions.

The US LCAP builds on Commodity Insights' existing low-carbon aluminum assessments for Europe, introduced in 2021.

The low-carbon duty paid in-warehouse Rotterdam aluminum premium was recently assessed in a range of $350-$375/mt June 4, coming off slightly from a one-year high at the end of May and signaling bullish end-user demand trends for sustainably produced aluminum.

While market participants have often pointed to Europe's first-mover status for various sustainability practices and energy transition trends, the Platts US LCAP will gauge how low-carbon aluminum trends now begin to develop in the US.