For the UK and European aluminium sector, 2023 was a year defined by demand slumps, excess inventories, and the impact of ongoing sanctions on Russian metal.
But there are certain themes that look set to predominate for the industry over the year ahead, and those on the lookout for the most suitable extruded aluminium products in the UK and elsewhere on the continent may wish to inform themselves of those trends.
So, below, we have put the spotlight on just three of the major talking points that importers and distributors anticipate for the aluminium industry in the UK and Europe over this year.
The risks of sanctions on Russia increasing tightness of supply
Poland and the Baltic states urged the European Union (EU) to ban imports of Russian aluminium in response to Moscow’s invasion of Ukraine, prompting a run up in the LME aluminium price over the year end.
Despite the price since falling back, the move highlights the market’s sensitivity to the outright ban of Russian primary metal. Following the removal of Indian metal from the LME, some 90% of aluminium on the exchange is now Russian, prompting two concerns.
The first is that the LME electing to follow national governments’ lead and banning the delivery of any further Russian metal into European exchanges would bifurcate the aluminium market with higher European premiums relative to Asia. The second is that the resulting tightness of metal supply would be seen as bullish for primary metal prices.
Having said all of this, the last nine to 12 months for the European aluminium market have been characterised by oversupply. Indeed, the whole aluminium supply chain has been carrying far more inventory than it is able to sell in a low-demand market, and is still trying to reach a balance.
A stronger emphasis on sustainability for UK and European aluminium, but little impact
There has been heightened talk in recent times about aluminium playing its part in growing the UK and Europe’s sustainable economy. However, the extent to which this connection goes much further than mere “talk” is open to question.
It is true that there are signs of “sustainability” initiatives creating demand for aluminium elsewhere in the world; however, to date, there has been little such impact in Europe.
What is largely happening instead, is that Europe is importing cheap Chinese solar panels, electric cars, and batteries. Half the EVs in Europe are imported from China.
Sustainability – whatever that is ultimately meant to mean – is benefitting Chinese manufacturers immensely, but there is still little evidence it is more than hot air here in Europe.
The knock-on effects of big regulatory changes in Europe
The UK aluminium industry will undoubtedly be significantly affected by the EU’s new carbon border adjustment mechanism (CBAM), which is already revolutionising supply-chain operations across every conceivable sector.
In the past, producers in the EU have benefitted from free allowances on the European Emissions Trading Scheme (ETS). However, a drive to minimise “carbon leakage” has led to the phasing-out of these allowances; in their place, a new global system is being introduced with the goal of levelling the playing field as far as carbon prices are concerned.
These are requirements that thousands of the highest-polluting firms in the EU are forced to comply with; aluminium producers must now report on direct as well as indirect embedded emissions. With effect from 2026, there will also be a need for such producers to pay a levy on direct emissions, using European carbon pricing as a basis; a 2.5% rate will apply in 2026, increasing to 100% of embedded emissions in 2034.
The UK Government has confirmed its own version of CBAM will be introduced, which will entail the addition of a carbon import tax to products and materials entering the UK market. However, at the time of typing, information about this scheme remained difficult to come by. The scheme is also only set to be implemented by 2027, although a consultation on the UK CBAM’s “design and delivery” has been promised for this year.
The outlook for the UK and European aluminium sector during this year, then, indicates continued challenges in the form of geopolitical tensions and outright conflicts around the globe, as well as the ongoing management of supply-chain disruptions and ever-changing regulatory pressures. It is an industry, then, that is still operating in interesting times, and that looks set to continue doing so for the foreseeable future.
To learn more about MCA UK’s services and expertise in relation to rolled and extruded aluminium products in the UK in 2024 and beyond, please feel free to contact us.
