US green aluminum premium to emerge in 2022: Rusal

Rusal America expects more US manufacturers to consider joining their counterparts in Europe and Mexico in paying a green premium for low-carbon aluminum products over the next year.

Producers of lower carbon aluminum such as Rusal have lobbied for the acceptance of a so-called green premium, which would entail a higher upcharge on top of the exchange price than the prevailing Midwest premium to guarantee the metal were produced using various low-carbon processes, such as hydroelectrical power or low-emission anode technologies.

"We absolutely have [sold at a green premium outside the US]. Everything we sell is green. It's just starting in the US, though," Rusal America chief executive Brian Hesse said in an interview with Argus. "I think in 2022, you're going to see traction around the green premium."

US consumers of primary aluminum purchase metal by adding an upcharge, the Midwest premium, on top of the LME cash official settlement at the time of purchase to pay for delivery, logistics and other fixed costs associated with delivery of the metal from a warehouse.

For the past few years, primary smelters around the world have marketed low-carbon primary aluminum, but the question of how to value more sustainable metal on the spot market remains murky, especially after the LME shelved plans last year to implement an entirely separate, physically-settled contract for low-carbon aluminum alongside its existing LME aluminum contract.

In February, Rusal America publicly announced two deals to supply Mexican manufacturers with low-carbon billet and slab, but these sales did not carry with them an explicit green premium. But Rusal does have two other contracts with Mexican buyers that entail a true low-carbon premium, in addition to agreements in Europe, Hesse said.

Similarly, Rusal's US green premium strategy does not involve commodity-grade P1020 aluminum traded on exchanges like the LME, but value-added products, such as aluminum slab, extrusion billet and foundry alloys.

These products are structurally tighter than P1020 and not produced at nearly the same volume around the world, making it easier for smelters hoping for a green premium to justify a further upcharge.

"P1020 plays zero role. It's impossible to pay the 232 tariff and take it across the ocean. It just doesn't make any sense to us," Hesse said, noting the largest US market for Russia-based Rusal is currently extrusion billet.

US 6063 billet premiums, the upcharge on top of the Midwest premium US extruders pay for billet, have more than doubled since the beginning of the year as tight supply and strong demand from the building and construction industry kept billet and extrusion sellers busy.

But Rusal, like most other large smelters, has little spot metal to offer US extruders that did not book all of their 2021 needs on contract.

"We have very little [billet] to sell on a spot basis; 99pc of what I put out the door is contract," Hesse said.

Recent US investments by companies like Matalco have helped boost onshore sources of scrap-based, secondary extrusion billet but the market is still reliant on primary imports from Canada, Russia, the Middle East and elsewhere.

"Because the market is so hot, I don't think [US billet capacity investments have] had much of on impact on us. However, we've had a couple OEMs who've gone to a 100pc recycling strategy. So it's definitely something that's on my radar and that we're looking at," Hesse said.

The company produces most of its primary aluminum in Europe and Russia, but operates 43 locations on five continents.

By John Betz