Sustainability in focus at S&P Global Commodity Insights Aluminum Symposium

Demand for aluminum is set to rise in the coming decades due to the metal’s role in energy transition technologies.

The International Aluminum Institute estimates demand for aluminum could rise 80% by 2050 from a 2018 baseline demand of 95 million mt, with the material having applications in solar and wind energy, electric vehicles, and sustainable packaging.

And as consumers place a sharper focus on supply chain sustainability, spurred by in-house sustainability targets, federal incentives and larger global efforts to decarbonize, demand for "green aluminum" and sustainable products is set to grow sharply, according to presenters at the 2024 S&P Global Commodity Insights Aluminum Symposium, held Jan. 28-30 in Scottsdale, Arizona.

US primary, secondary aluminum production needed amid growing demand

There is a perception in the US aluminum market that there is competition between primary and secondary aluminum production, but demand for both is growing and both are needed, Steve Fisher, CEO of aluminum recycler and producer Novelis, said during a fireside chat Jan. 29.

"If you believe in the projections of aluminum growth and why aluminum is winning, it’s winning because it’s taking share away from other materials," Fisher said. "If you continue to believe aluminum wins and takes share, we’re always going to need both and we’re going to need to see primary grow and we’re going to need to see the recycled content grow as well."

And with this expected growth in demand, it is important for legislators and others that are thinking about the need for aluminum manufacturing in the US to realize a lack of primary production is not going to be solved by recycled content, Fisher said.

"We’re obviously going to do our part in the recycled content piece but we’re going to work with primary producers on ways to decarbonize upstream production," Fisher said, adding this is needed to create aluminum with a zero-carbon footprint. "We absolutely have to get more strategic and we have to get the mindset of the value chain winning together."

US energy policy advancements, long-term tax credits needed to build new capacity

For the US to have a globally competitive primary aluminum industry, the federal government needs to make some advancements on energy policy and provide longer-term planning certainty for producers to build or restart new capacity, industry experts said during a panel discussion Jan. 29.

"I think the US government is trying to support the domestic production of aluminum. All the efforts that have been done to date are helping to offset the losses on the domestic smelters, but it’s not enough to incentivize growth," said Renato Bacchi, executive vice president and chief commercial officer at Alcoa. "Growth will come with access to fairly priced energy."

Part of the issue is the highly fragmented structure of the US energy sector itself, said Jake Skelton, CEO of EGA America. While there may be some incentives in certain areas of the country, none are on a long-term basis, he said, raising the risk of investment.

"These aren’t small investments, you’re talking $5 billion-$10 billion with 10- to 20-year paybacks," he added.

Another issue facing smelters in the US is that as the country retires older coal-based generating assets, the grid becomes more stressed in general, said Matt Aboud, senior vice president of strategy at Century Aluminum.

Because of the issues around accessing reliable, renewable energy in the US, the build out of secondary aluminum supply is expected to outpace primary production over the longer term, according to Matt Schicke, general manager of Atlantic metal sales and trading at Rio Tinto.

Not only do primary aluminum smelters need greater certainty around energy supply and costs, but there also needs to be more certainty around tax programs to incentivize increased production, said Duncan Pitchford, president of Hydro’s US aluminum metals division and head of its commercial operations in the Americas.

He said the recently announced Section 45X Advanced Manufacturing Production Credit is a step in the right direction but looking at other areas like research and development tax credit programs that go on for two or three years before sunsetting, it’s not enough time for a large-scale investment in primary production.

"I think policymakers need to understand that, yes, some of these steps that have been taken are good, they're appreciated, but they have to be durable and they have to have durability that can be backed," he said.

Supply, sorting top of mind as US aluminum scrap demand set to expand

As secondary aluminum production is expanding in North America, so does demand for recycled metals.

At the same time, as automotive production shifts more toward electric vehicles, the types of scrap being generated and sought by customers are changing, industry experts said during a panel discussion Jan. 30.

"It’s certainly been interesting over the last few years where traditional scrap that came into secondary -- UBCs, clean sheet, etcetera -- is actually more and more starting to be used by the rolling mills as they’ve put in more recycling capability," said Russell Barr, chief operating officer of metals recycler Real Alloy. "I think that’s probably forced companies like ourselves to start looking more and more down the scrap chain."

This means looking to recover metals from more contaminated scrap, Barr said, and if you are taking in more contaminated scrap, you must look at sorting systems to clean it up.

Additionally, as the types of vehicles and products produced with aluminum changes, certain grades of scrap are being favored due to buyers seeking more low-iron, high-purity grades, leading to increased demand for wheel scrap, according to Joe Tomolo, director of business development of aluminum scrap recycler Sims Alumisource.

US low-carbon aluminum premium seen necessary to decarbonize

Aluminum producers see the adoption of a US premium for low-carbon material as key in providing incentive for the industry to fully decarbonize.

"In my mind this is one of the incentives the industry needs to decarbonize," Alcoa’s Bacchi, said during a panel discussion Jan. 29. "The amount of money the industry will collectively spend to decarbonize the industry is not small and somebody will have to finance that."

According to the Department of Energy’s 2023 Pathway to Industrial Decarbonization Commercial Liftoff report, decarbonizing US aluminum production could require $10 billion-$15 billion in capital investment through 2050 to scale decarbonization technologies.

"We have got to spend a lot of money over the next years to be able to fully decarbonize and in order to have the incentive to do that, it has to be paid for," said Hydro’s Pitchford said.

Building on the success of its European low-carbon aluminum indexes, Platts, on Jan. 2, launched a new daily LCAP price assessment for the US market, using the same 4 mt maximum C02 emissions. US-LCAP covers direct and indirect emissions associated with aluminum smelting, typically considered by market participants as scope 1 and 2 emissions.