Rising differentials for low-carbon aluminium

Demand for low-carbon aluminium units in Europe remains strong, especially for value-added products (VAP), market participants told Fastmarkets on Friday October 1

By Alice Mason, European base metals editors 

Fastmarkets assessed the aluminium low-carbon differential value-added product (VAP), Europe at $20-30 per tonne on Friday October 1, up from $15-25 per tonne on September 3.

Market participants noted a clear gap between different VAP units, with aluminium billet trading closer to $20 per tonne, while primary foundry alloys were trading at closer to the high end.

Some sellers said they expect to command a premium differential of $50 per tonne for primary foundry alloys in 2022.
“The [original equipment manufacturers say sustainability] is top of their priority list. Those OEMSs will pay us for the materials going to their foundries,” a producer said.

Spot liquidity was low this month, with most market participants focusing on 2022 deals and on securing units for the full year.

The differential for primary aluminium also rose this week. Fastmarkets assessed the aluminium low-carbon differential P1020A, Europe at $0-7 per tonne on Friday, up from $0-5 a month earlier.

“If today someone asks you for certified metal, they automatically pay something. In the end, customers call you and they are aware and they expect to pay more,” a trader said.

Offers for P1020 were heard at $10-12 per tonne, with some at $15 per tonne for 2022 contacts.

But commanding a premium for “green” P1020 units is still proving difficult for some market participants.

“We have tried to offer P1020 with a differential, but it is not as easy as with value-added products. Over time it will come, and I think next year will be a big year for these discussions,” a second trader said.

Strong aluminium demand and high underlying premiums continue to support the market, while the European Union’s carbon border adjustment mechanism (CBAM) continues to add to the longer-term bullish outlook.

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