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Constellium is an American Swiss company and a large aluminium consumer in Europe, turning domestic aluminium into downstream products such as rolls, extrusions and automotive components. It also has a recycling division that recycles aluminium scrap for its own production and for its customers.
It purchases European aluminium at the London Metal Exchange (LME) price plus a regional premium. As of January 1, all of Fastmarkets’ European premiums that are inclusive of duty costs across ingots, billets and primary foundry alloy will have CBAM costs embedded in them.
“What CBAM does is it raises the cost of aluminium in Europe. Therefore, Europe as an exporting continent is hindered in its exports because we become less competitive,” Germain said.
“The cost of aluminium is more [expensive], so it’s more difficult to ship my products overseas, but also the aluminium that goes into a car becomes more expensive if it is sourced in Europe and the car becomes less competitive,” he said.
The European automotive industry is a fragile section of the bloc’s economy that could be negatively affected by CBAM.
According to a report published by the European Automobile Manufacturers’ Association (ACEA), car manufacturing in Europe dropped by 6.2% in 2024, largely driven by weakening consumer demand, inflationary pressures and elevated costs.
For some, green policies such as CBAM could be an additional challenge on top of this.
“I think that today the European automotive industry could do without more issues to navigate,” Germain said.
“We’re in agreement with decarbonizing; we do not have a problem with that,” he said.
“CBAM comes from good intentions, but it is a bad idea. It’s not going to help with decarbonizing [and] it is going to hurt the aluminium industry in Europe,” he said.
“It’s not a catastrophe in 2026 or in 2027; it’s going to be gradual. So that’s why it’s important to get in front of it. And we’ve tried to [talk] to the European Commission to explain how we look at things and what the issues are, but it’s been difficult to be heard,” he added.
Constellium argues that derivative aluminium products – the kind of rolls, sheets, plates and extrusions it produces – will become less competitive under CBAM.
Germain offered the example of a can sheet maker producing aluminium for cans that are subsequently sold to a drink manufacturer.
“If that product is not [CBAM inclusive], it is tempting to be purchasing it from outside the EU [because] you obviously have a cheaper metal,” he said.
This also applies to original equipment manufacturers (OEMs) that purchase upstream CBAM goods that have additional costs attached, but the end product that is made – be it a car, airplane or construction goods – is excluded from the policy.
“If you’re a European OEM and you need some steel or aluminium panels for your car and structures, you’re going to be paying more, but a car made overseas and imported into Europe is not CBAM-ed.”
It subsequently becomes very tempting to think of shifting production lines out of Europe because of weakness in the products’ competitiveness, Germain said.
But reports have surfaced this week that the European Commission is exploring the potential of extending CBAM’s ambit further downstream to include semi-finished and finished products.
“The derivatives issue is a thorny one. You can limit damage by going a bit more downstream, but I think there will always be loopholes,” Germain said.
Closing loopholes and keeping indirect emissions out of the policy will “reduce the pain” but it will not “help or protect the industry”; it will only “reduce the level of damage,” he said.
He noted that these consequences of CBAM are not going to happen in “one fell swoop” but rather will happen gradually and incrementally.
This is compounded by the removal of free allowances, acting as an additional challenge to the European aluminium industry, Germain noted.
Certain market participants are granted free allowances to emit carbon under the EU Emissions Trading System (ETS) to address the risk of carbon leakage. But as CBAM comes into force, free allowances will be gradually phased out, meaning both domestic and international producers have comparable carbon costs, subsequently leveling the playing field.
Although, as with many things with CBAM, it’s not quite as simple as that.
“You’re incurring a double whammy here because the reduction of ETS [allowances] is going to make our energy even more expensive – and it’s already two-three times more expensive than China or the US. In addition, you’re increasing the cost to the European producers and the customers of our products,” he said.
“All that would be good if the objective was to weaken European industry, which it is not. It would be good if the objective was to reduce jobs in Europe, which it is not,” he said.
“The objective is to decarbonize,” he added.
If the competitiveness of Europe’s industry does begin to wane, market participants have increasingly questioned where that leaves aluminium.
“What is really sad is that on average Europe is emitting around 6.5 tonnes of CO2 per tonne of aluminium; the world average is around 14 tonnes of CO2 and China is north of 20 [tonnes of CO2],” Germain said.
If resource shuffling does occur as a result of CBAM, “we’re going to replace our low-carbon smelting capacity [with] a worse environmental footprint elsewhere,” he said.
“[CBAM] is not going to create new smelters [in Europe] that are going to be powered by wind and solar. It’s just going to be reshuffling our resources and we will be in a place where essentially the emission of the planet stays the same,” he added.
Europe has already lost five aluminium smelters since 2021, all of which were powered via electricity. European energy has significantly lower carbon emissions than coal or gas – a popular mode of powering aluminium smelters internationally.
This is a point raised repeatedly in the European aluminium industry in relation to CBAM and was recently echoed by Glencore’s head of aluminium, alumina and bauxite Robin Scheiner during a panel discussion in Brussels.
For Constellium, it’s not the idea of CBAM that is flawed but rather its implementation.
“It’s a great idea in concept, but really terrible in implementation. We’re three weeks away from it taking place and there’s [still] plenty of unknowns.”
“The first thing to do is stop the clock,” he said.
One of the issues is ongoing uncertainty around CBAM’s execution. “You have such a wide range of outcomes that it is impossible to prepare yourself for it,” Germain said.
In addition, he noted it remains unclear how fast these cost liabilities will “materialize.”
“I don’t think the impact in 2026 is going to be much of a big deal, but if it’s bad and if the direction of travel takes us to a very undesirable place, will we be able to course correct?” Germain said.
“My prognostic is not very optimistic,” he said.
“CBAM as it is designed for aluminium is going to do nothing for reducing emissions [and] it’s going to make European industry less competitive. Getting rid of it for aluminium would be great. Is it realistic? I’m not sure,” he said.
“Stopping the clock and taking time to look at what it is we need to do so that [to] minimize the damage, I think is an absolute necessity,” he added.
The EU’s CBAM is entering its definitive phase on January 1, 2026.
Fastmarkets provides leading economic analysis to help market participants understand the cost of the EU CBAM, and navigate its impact on trade flows, supply chains and decarbonisation strategies. Discover more.