European aluminium producers are bracing for a sharp rise in costs as the European Union prepares to overhaul its Emissions Trading System (EU ETS).
The reform, designed to give companies more time to decarbonise, includes changes to benchmark values that determine the free allocation of carbon allowances.
According to Norman Liebke, FX and commodity analyst at Commerzbank AG, the new benchmark methodology poses a serious threat to recyclers and refiners.
Aluminium producers face higher costs under EU ETS reform
“No specific product benchmark values are set for aluminium recycling or alumina refining, meaning so‑called fallback benchmark values are used,” Liebke explained.
These are set to decrease by 34% for the 2026–2030 period compared to the 2021–2025 values, which would require recyclers and refineries to purchase significantly more allowances.
European Aluminium, the industry association, warned that the changes could undermine competitiveness.
Aluminium prices are set globally, meaning producers cannot simply pass on higher costs to customers.
Liebke noted that profitability could be “massively impacted,” with recycling in particular at risk of being squeezed out.
The reform also revises royalty frameworks for nomination blocks, alongside plans for a decarbonisation fund and adjustments to the market stability reserve.
While the EU intends to ease the transition toward greener production, industry voices argue that the unintended consequence may be to weaken Europe’s recycling sector, which is central to the bloc’s climate ambitions.
Copper shrugs off geopolitical uncertainty
In contrast to aluminium’s policy‑driven challenges, copper markets are surging toward record highs despite ongoing geopolitical risks.
Prices came within $500 of January’s intraday record, buoyed by strong investor appetite across financial markets.
Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said the rally reflects confidence that the economic fallout from the Iran conflict will remain limited — at least if peace talks eventually reopen the Strait of Hormuz.
The recovery seen in recent weeks across a wide range of financial markets has shown that the market currently fears only limited economic repercussions from the ongoing crisis in the Middle East.
Oil prices have risen again after US President Donald Trump rejected Tehran’s latest proposal, but copper has remained resilient.
Nguyen cautioned, however, that “the longer the blockade lasts, the more severe the impact on the global economy is likely to be, meaning that the risk of setbacks should not be underestimated.”
Supply factors add support
Beyond geopolitics, supply‑side developments are also supporting copper prices.
Chinese trade data for April showed a slowdown in copper ore imports, raising concerns about less dynamic production in the world’s largest producer.
Nguyen pointed out that the Strait of Hormuz blockade is limiting the supply of sulfuric acid, a key input in copper ore mining. “This, in turn, could exacerbate the shortage of copper ore,” she said.
The combination of constrained supply and robust demand from electrification and renewable energy projects has reinforced copper’s bullish outlook.
Traders are betting that fundamentals will outweigh geopolitical risks, at least in the short term.
Diverging commodity outlooks
The updates from Commerzbank highlight a striking divergence in Europe’s commodity landscape.
Aluminium producers face mounting regulatory costs that could erode profitability and weaken recycling, while copper markets are powering higher on structural demand and supply constraints, even as geopolitical risks linger.
Liebke warned that the EU ETS reform could “threaten the competitiveness of European aluminium producers, particularly recyclers,” while Nguyen emphasised that copper’s rally is not immune to setbacks if the Middle East conflict drags on.
Together, their analysis underscores the complexity of today’s commodity markets: policy reforms and geopolitical shocks are reshaping fundamentals, but investor sentiment and structural demand continue to drive divergent outcomes across metals.
