News & Market Analysis: Not All Aluminium Is Priced the Same; Carbon Is Now Moving Premiums

Carbon intensity is now influencing aluminium premiums, shaping who pays what, and where. The LME aluminium benchmark still does what it was created to do, it anchors a reference price for a globally traded metal, while providing a hedging tool for producers and consumers alike.

What it does not do is describe the price at which aluminium changes hands in the physical market. That gap has always existed and is bridged by premiums reflecting location, delivery terms, and availability that have long determined how far physical prices sit above (or below) the exchange price. Increasingly, carbon intensity is now entering the same space, and carbon intensity is becoming part of how physical aluminium is priced.

Carbon intensity is a major factor in sustainable metal classification - though it is certainly not the only one - and aluminium production is often fundamentally a question of energy. Smelting is highly power intensive and the source of that energy shapes both cost and emissions. As policy and procurement standards tighten, those differences are moving from the margins of corporate reporting into the centre of commercial conversations. 

The physical market is responding in a familiar way. Production is gravitating toward regions with access to lower carbon electricity, and capacity is being relocated, repurposed, or capped rather than expanded freely. That constrains supply flexibility even when headline output numbers look stable.

For buyers, no longer academic. Aluminium that meets technical specifications but carries higher emissions now comes with additional regulatory, reporting, or reputational exposure. Aluminium produced with lower carbon power does not. The benchmark price makes no distinction between the two. But premiums do.

Low-carbon aluminium is already commercially material. The World Economic Forums 2024 Net Zero Industry Tracker* puts average sector emissions at around 10 tCO2e per tonne in 2023, with recycled metal accounting for roughly 36% of global output. Given the substantially lower footprint of secondary aluminium, that represents a significant pool of supply already sitting well below the sector average. Emissions intensity is no longer a theoretical construct; it is and active feature of today’s aluminium market.

Not every consumer needs it and not every producer can offer it. But enough transactions now discriminate on emissions that the physical market has begun to price that difference. This is not a moral premium; it is a scarcity premium. As with logistics or regional tightness, the benchmark anchors the market, but the premium clears it. Carbon has simply joined the list of factors the benchmark cannot express.

The result is a widening spread between aluminium that is interchangeable in theory and aluminium that is acceptable in practice. Premiums, increasingly and selectively, signal what kind of aluminium certain buyers are willing to pay more for, whether due to location, form, availability, logistics, or now, in some cases, carbon intensity.