(Repeats Monday's column with no changes to the text. The
opinions expressed here are those of the author, a columnist for
LONDON, May 24 (Reuters) - How green would you like your
The answer for a growing number of electronics
manufacturers, car makers and packaging companies is as green as
This rising demand for metal with a low-carbon or even
zero-carbon footprint is rapidly reshaping the market landscape.
Russia's Rusal, the world's largest aluminium
producer outside China, announced last week it plans to spin off
its higher-carbon production assets into a new company, leaving
its low-carbon refineries and smelters in a rebranded "AL+".
China's Hongqiao, the world's largest
privately-owned producer, is planning to move another million
tonnes of smelting capacity from coal-rich Shandong province to
hydro-powered Yunnan to reduce its carbon footprint.
The race to decarbonise aluminium's energy-intensive
production process is on and the world's biggest global players
are re-positioning themselves to navigate the resulting tectonic
DOING THE RUSSIAN SPLITS
Rusal's carbon split is a reflection of the growing consumer
preference for greener brands of aluminium such as the company's
ALLOW, which has a carbon footprint five times below the
But it is also being driven by the looming prospect of a
European carbon tax on imports of industrial commodities such as
The region accounted for 42% of Rusal's sales in the first
quarter in this year and the company warned against a
"one-size-fits-all" Carbon Border Adjustment Mechanism (CBAM) in
an October submission to the European Commission.
Rusal suggested instead a waiver of existing European
aluminium tariffs for low-carbon metal but the political
momentum appears to be moving in the opposite direction, with
growing support in the European Union for a carbon levy of some
The form and timeline of any aluminium carbon wall remains
beholden to the labyrinthine decision-making process of the
The European Aluminium Association (EAA), which represents
over 80 companies in the region, has also come out against the
proposed CBAM and is fighting an intense rearguard action over
the devilish details of the proposals.
However, carbon differentiation is coming sooner or later in
Europe and Rusal's split preempts that reality.
The renamed "AL+" with its newer, hydro-powered Siberian
smelters will direct flows of green metal towards Europe and
other export markets.
The older assets, due to undergo a long-term modernisation
programme, will "concentrate on the development of the domestic
market and its growth potential", Rusal said.
The green consumer revolution has evidently yet to arrive in
THE RACE TO YUNNAN
Rusal has the massive green advantage of being largely a
hydro-powered aluminium producer.
China's Hongqiao started out at the opposite end of the
carbon spectrum, churning out over six million tonnes every year
from smelters powered by captive coal generators in Shandong
It has already dismantled two million tonnes of capacity and
moved it to Yunnan province, part of a larger hydro rush by a
Chinese smelter sector that is overwhelmingly coal based.
The planned shift of another million tonnes is a sign of the
building pressure on the sector after President Xi Jinping's
pledge that Chinese coal consumption will peak over the course
of the current five-year plan running to 2025.
Hongqiao's migration, it is worth noting, comes at an
It is swapping its energy security for the vagaries of the
Yunnan power grid.
Low rainfall in the province is already impacting aluminium
smelter operating rates and more trouble may be coming as the
regional government tries to hit its energy consumption targets.
Yet Hongqiao has evidently decided that the price is one
worth paying if it is to reap the rewards of being a green,
hydro-powered aluminium producer.
Political mandates for decarbonisation in both Europe and
China are accelerating the consumer-driven trend towards greener
They are also forcing a splintering of market pricing
between low- and high-carbon metal.
The resulting premium for green metal has so far only
appeared in the financial plumbing of the market in the form of
financing linked to sustainability metrics.
Rusal, for example, signed in February a $200 million
pre-export finance facility with the interest rate "subject to a
sustainability discount or premium" depending on the company
meeting sustainable performance targets.
Trade house Trafigura announced last September a $500
million financing facility for low-carbon aluminium at a
discounted rate, allowing the payment of a notional premium to
Stock financiers, a key part of the aluminium market's
ecosystem, may already be trading a green premium in this sort
So far there has been no sighting of a low-carbon premium in
the physical transaction chain.
But that may be about to change as well.
Price reporting agencies such as S&P Global Platts and
Fastmarkets have this year launched new green aluminium premium
They are clearly anticipating the premium for low-carbon
aluminium will sooner or later spill out of the financing sector
into the physical supply chain.
Rusal and Hongqiao in their different ways are preparing for
exactly such an outcome, clearly differentiating part of their
output as low-carbon product.
Fastmarkets currently assesses the premiums for European
low-carbon ingot and products at a nominal $0 and $10-15 per
tonne over London Metal Exchange cash prices respectively.
Given the current pace of decarbonisation change in the
market, such assessed premiums are not going to stay at those
nominal levels for too long.
(Editing by Jan Harvey)