Low carbon still a high priority for metals markets

Few would blame the metals sector if it set aside decarbonization efforts while navigating the impact of geopolitical uncertainty, supply chain disruptions and inflationary concerns that have shaken global commodities markets this year. But the opposite has been true, particularly in Europe.

Carbon-accounted metals products continue to be sought after by eco-conscious end-users and consumers alike, and often are commanding price premiums over comparable standard material.

The price differentiation that has emerged has been the driving force behind low-carbon metals price assessments launched by Platts, part of S&P Global Commodity Insights, since early last year.

On Sept. 20, Platts launched the latest offering in this space – new daily European Low-Carbon Aluminum Billet assessments, delivered duty paid Italy and Germany.

In tandem with the launch, Platts increased the frequency to daily of its existing weekly assessments for both standard aluminum billet DDP Italy and DDP Germany, also effective Sept. 20.

The LCAB assessments apply to 6060/6063 billets produced with a maximum Scope 1 and 2 certified emissions level of 4 mt of CO2 per mt of aluminum at the smelter only, in dollars per metric ton, minimum order sizes of 50 mt. The assessments do not encompass Scope 3 emissions of other production-related activities, such as mining and raw material transportation.

Platts will only consider aluminum billets which have had their smelter Scope 1 and 2 emissions certified by an internationally accepted, independent organization for the LCAB assessments. Market participants also will be expected to supply proof of such certification upon request.

'More legislation, more restrictions'

The LCAB launch comes as European low-carbon aluminum billets have already begun to command a premium to standard billets.

Whether they're produced by smelters utilizing low-emissions energy sources or secondary material made predominantly from scrap, market sources reported low-carbon billets were fetching premiums mostly in a range of $20-$40/mt over the month leading up to the launch, according to Platts data.

No premium was captured on the first day the LCAB assessments went live, however, with standard and low-carbon billets both assessed at $1,010/mt.

One North American aluminum consumer told S&P Global recently that the European market has been driving demand for low-carbon material – both as end-users seek such suppliers and their customers increasingly require certified low-carbon products.

The consumer added that in the past, customers – particularly in the automotive sector – often preferred primary billets and rejected secondary billets made with scrap. Now, with decarbonization a priority, most push for material made with a minimum of 80% recycled material, as well as certifications they can show to customers to prove it. Billets made from scrap consume less energy in production than those made through primary aluminum smelting.

A European producer source pointed to the region's more stringent regulatory environment and the likelihood of continued legislation driving demand for low-carbon material into the future.

"The more legislation we have, the more restrictions there will be on high carbon, which will concentrate more demand into low carbon," the producer said.

Decarbonization's global reach

While the European market so far has emerged as the trend setter when it comes to low-carbon metals and emerging price premiums, demand for such material is not limited to that region.

Global producers including Alcoa, Rusal, Rio Tinto, Century and Hydro all have released low-carbon product lines in recent years, with guarantees of less than 4 mt of CO2 per mt of aluminum produced, based on smelter emissions.

The trend gained momentum last year, as the International Aluminum Institute released a report outlining what it characterized as "three credible and realistic approaches to emissions reductions for the aluminum industry." The report, titled "Aluminium Sector Greenhouse Gas Pathways to 2050," pointed to electricity decarbonization, direct emissions reduction and recycling and resource efficiency as potential solutions.

Platts LCAB assessments launch followed extensive engagement with market participants throughout the aluminum value chain. The new assessments complement Platts existing carbon-related price offerings, including its Low-Carbon Aluminum Price (LCAP) for high-grade European P1020 aluminum and its Zero-Carbon Aluminum Price (ZCAP) leveraging Platts CORSIA-eligible carbon credit price assessments (CEC) to calculate the cost of offsetting the carbon emissions of the LCAP assessment to zero.

Platts also publishes eight global low-carbon metals spreads and ratios that incorporate some of the most liquid markets and widely used finished product and feedstock assessments. The spreads and ratios can help compare lower- and higher-carbon metals inputs and inform feedstock choices, such as usage of various scrap grades and other metallics.

Just as the metals sector has remained focused on decarbonization despite the challenges of current market conditions, Platts will continue to offer carbon-related metals assessments, insights and tools aimed at bringing transparency, quantifying costs and managing risks and opportunities associated with the growing focus on carbon-reduction strategies and increasing global regulation.