2024 Outlook for the UK Aluminium Industry

Published 22nd January, 2024 by Zahra Awan

Last year, the UK aluminium industry was characterised by low inventories, prolonged and extensive slumps in demand, and sanctions still hanging over Russian metal. There is, however, an expected economic upshift by the end of 2024, and with new EU regulations adding taxes to high carbon imports from 2026, the aluminium industry can expect a year of transitional change, with renewed focus on supply chains and sustainability.

Economic outlook

In 2023, the weakened economic climate was exacerbated by both an energy crisis linked to global conflict, and supply chain disruptions that have yet to fully recover from the pandemic.

Supply chain issues have led to historically low stock levels of aluminium and despite a spike at the end of 2023, global consumption has remained relatively flat. This weakness in European aluminium imports has however been counterbalanced by strong demand from China – a market which is now the key driver of global aluminium trade. With the booming Chinese electric vehicle and solar panel industries, demand from China doubled between 2022 and 2023 and absorbed the primary surpluses left by demand slumps in Europe, making a significant contribution to the market.

While industry-wide global export prices have fallen considerably over the last 12 months, this year economic slacks are expected to open up, strengthened in part by a resilient labour market, a fall in energy prices and improvements in household real income growth. While Aluminium is set to remain in surplus with overhanging low inventories through most of 2024, it will move into a more balanced market towards the end of the year, with demand beginning to make a meaningful recovery by 2025.

Major regulatory changes in Europe

The EU’s new carbon border adjustment mechanism (CBAM) is revolutionising the way that supply chains operate across all industries. While producers in the EU have historically received free allowances on the European Emissions Trading Scheme (ETS), these are now being phased out to limit “carbon leakage”, and replaced with a global system to level the playing field on carbon prices.

Thousands of the most polluting EU businesses must comply, with aluminium producers now liable to report on both direct and indirect embedded emissions, and from 2026 paying a levy on direct emissions based on European carbon pricing (phasing in progressively from a 2.5% cost in 2026 to 100% in 2034). With 30,000 tonnes of aluminium imported into the EU every day, CBAM will have a significant impact on the UK aluminium industry.

The UK government also recently announced its own version of CBAM, which adds a carbon import tax to products and materials entering the UK market. Presently details are scarce, but there is expected to be a transitional period where reporting requirements and charges are introduced through a similarly gradual approach.

During the EU CBAM transitional period and in preparation for its UK counterpart, aluminium importers should begin collecting and collating both in-house data and on supplier emissions, which can be used to analyse carbon risks, adapt business models, and take actions to change procurement strategies or

renegotiate supplier contracts.

The case for sustainability in UK aluminium

The UN’s Sustainable Development Goals (SDGs) are a collection of seventeen interlinked sustainability objectives which offer a “blueprint” for a healthier planet, society and economy, and the aluminium industry has a major role to play in achieving these goals.

Aluminium contributes significantly to the growing UK sustainable economy, predominantly in renewable energy technology, the transition to electric vehicles, and as the most widely recycled drinks container, but there was six key sustainability issues which the industry must consider to more closely align with the SDGs: climate change, circularity, emissions & waste, water, biodiversity, and people.

Increasing sustainability in these areas will require a strong sector ambition, and industry-wide collaboration to set measurable goals and metrics for tracking progress. With cooperation across aluminium supply chains, new technologies and knowledge can be researched, developed and implemented.

As it stands, aluminium is currently at business-as-usual greenhouse gas (GHG) emissions levels and not on track for making reductions as set out in the SDGs, and have in fact risen. To remedy this, the sector could benefit from targeting three pathways for reducing GHG emissions: i) electricity decarbonisation, i.e. renewable energy procurement; ii) direct emissions, such as those from fleets and production processes; and iii) recycling and resource efficiency, including the use of side streams and water use.

Looking ahead

In this fluctuating economic climate, the aluminium industry must consider the long-term implications of global conflict, supply chain disruptions, and evolving regulatory pressures. Future considerations will need to be centred around identifying new import suppliers, understanding stretch capacity of domestic supply and considering alternatives to primary aluminium, while putting a refreshed focus on greenhouse gas emissions and sustainability.

 The aluminium industry will be key to driving industrial change and sustainable progress in the UK economy. With significant strategic value to innovation across a variety of sectors, aluminium is perfectly positioned to capitalise on the rising demand for sustainable materials and unlocking growth in the global green economy. For now, the sector must focus pushing through another difficult year, but on the other side will benefit from an invigorated economic upturn and more balanced markets in 2025 and beyond.