The report, which modelled market fundamentals and premiums for low-carbon metals through 2030, said demand from automotive and construction market participants with decarbonization targets will drive demand for these metals this decade.
“Demand for low-CO2, or ‘green,’ products is ramping up as end customers, manufacturers and governments push for increased sustainability and circularity,” Anna Moore, a partner at McKinsey, said.
“Primary materials processing makes up the majority of GHG [greenhouse gas] emissions for many industrial products, which has led to increased attention on decarbonizing core contributing commodities. In turn, time-bound green premiums are emerging for certain commodities, depending on supply-side flexibility and cost,” she added.
The aluminium industry is expected to experience exponential growth in demand for low-carbon aluminium, while supply is also expected to grow, according to Moore.
Fastmarkets launched low-carbon aluminium differentials for primary aluminium and value-added products in March 2021 to provide more transparency in the market.
The Fastmarkets specification defines low-carbon aluminium as aluminium produced with scope 1 and 2 emissions of four tonnes of carbon dioxide equivalent [CO2e] or less.
Moore expects green aluminium demand to grow from 26 million tonnes in 2021 to 62 million tonnes by 2030. But the overall market is expected to remain in relative balance, with supply expected to increase from 44 million tonnes to 71 million in the same period.
That balance is expected to keep low-carbon aluminium premiums capped, but Moore said certain niches in the low-carbon aluminium segment could have “significant” premiums.
“Demand could emerge for ultra-low-CO2 aluminium grades,” Moore said, specifying ultra-low means emissions of less than 0.5 tonnes of CO2 per tonne of aluminium from the electrolysis process.
The luxury automotive and energy sectors could be the drivers of demand for ultra-low-carbon aluminium.
“This means that pushing beyond rates of less than four tonnes of CO2 per tonne of aluminium is the next frontier, requiring advances and significant investments in technologies, such as inert anodes, to enable the required increase in capacity,” Moore said.
Fastmarkets assessed its aluminium low-carbon differential P1020A, Europe at $10-30 per tonne on October 7, compared with $0 per tonne in March 2021. The differential will next be assessed on Friday, November 4.
The differential for low-carbon aluminium has remained firm despite falling underlying premiums in Europe. Fastmarkets assessed its aluminium P1020A premium, in-whs dp Rotterdam at $260-290 per tonne, down 55% from the all-time high of $600-630 per tonne earlier this year.
Despite weakening demand in the European market, participants noted continued demand for low-carbon aluminium units. There was increased demand to secure the units for the whole of 2023, with Europe’s recent supply shortage being filled with imported units.
In copper, Moore said she expects either a balanced or oversupply market for low-carbon material – less than 1.5 tonnes of CO2 per tonne produced – while the overall copper market could be undersupplied.
Supply of low-carbon material is expected to grow from 2 million tonnes in 2020 to 3 million-4 million tonnes in 2030. Low-carbon demand is expected to grow from nearly zero in 2021 to 2 million-3 million tonnes in 2030.
Fastmarkets reported in October that low-carbon copper is also becoming a key talking point, with discussions about premiums emerging in annual contract negotiations.
Some producers, such as Boliden in Europe, now offer specific low-carbon copper products.
Like low-carbon aluminium, opportunities for low-carbon premiums in copper could emerge in niche segments such as ultra-low-CO2 grades, Moore said.
Premiums for low-carbon steel are also likely to be supported by a “structural undersupply,”, especially in Europe, where less than five percent of flat steel produced there is considered green and switching to lower carbon production methods is expensive, Moore said.
“Commodities such as steel and plastics face low-CO2 supply shortages, which are difficult to resolve by bringing additional green capacity online, and lead to green premiums,” Moore said.
Demand for low-carbon steel is expected to increase from 84 million tonnes in 2021 to nearly 200 million tonnes in 2030, also supported by automotive and construction demand, Moore said.
“In our base-case scenario, we expect significant green premiums to emerge by the mid-2020s, increase further when hydrogen [direct-reduced iron] plants come online after 2025, then gradually decrease as additional capacity comes online,” Moore said on low-carbon flat steel.
Steel producers Tata Steel Netherlands, Salzgitter Flachstahl and Thyssenkrupp Steel Europe will supply carmaker Ford’s Europe division with low-carbon steel for its future vehicles starting in 2023, the car company said on October 25.
Pressure from consumers in the flat steel sector, where car manufacturers are a major market, has already led to several future green steel supply agreements between steelmakers and companies in the automotive industry, but green initiatives have had little uptake in the long steel sector.
