Aluminium: EU ETS reform raises cost risks – Commerzbank

⦿ Executive Snapshot

• What: EU ETS reform may raise costs for aluminium recyclers and refineries significantly.
• Who: Commerzbank, European Aluminium industry group, Norman Liebke.
• Why it matters: The reform could undermine the competitiveness of aluminium recycling in Europe, affecting profitability in a globally priced market.

⦿ Key Developments

• The EU ETS reform includes new benchmark calculations which could sharply increase costs for recyclers and refineries.
• Fallback benchmarks are projected to decrease by 34% for the 2026–2030 period compared to 2021–2025 values, necessitating the purchase of more allowances.
• The industry group European Aluminium has expressed concerns that higher costs from the EU ETS reform cannot be passed on, threatening profitability.

⦿ Strategic Context

• The EU ETS reform aims to ease the burden on companies while providing more time for decarbonization efforts, highlighting a shift in environmental policy.
• The global pricing of aluminium complicates the ability of European companies to absorb increased costs without losing competitiveness against international markets.

⦿ Strategic Implications

• Immediate market implications include potential increases in operational costs for European aluminium recyclers, which could reduce their market share.
• Long-term implications may involve a decline in aluminium recycling rates in Europe, affecting sustainability goals and increasing reliance on primary aluminium production.

⦿ Risks & Constraints

• Regulatory risks include potential backlash from the industry if the reform is perceived as detrimental to competitiveness.
• Technical risks involve the ability of companies to adapt to new benchmark calculations and manage increased costs effectively.

⦿ Watchlist / Forward Signals

• Key upcoming milestones include the finalization and implementation timeline of the EU ETS reform and its benchmark calculations.
• Monitoring aluminium pricing trends globally will provide insight into the market's response to the increased costs associated with the EU ETS reform.