07 Dec 2021

The Inexorable Greening of Aluminium

Global Insights
A greener aluminium industry has a vital role in reducing global carbon emissions. A new report by Citi’s Americas Metals & Mining Research analyst, Alexander Hacking, looks at progress and prospects as its green transition gathers pace.

The aluminium industry accounts for 4% of global greenhouse gas emissions, with an average emission of 11.5 ton CO2 per ton of primary aluminium produced. The technology exists to materially reduce this – primarily shifting to smelters powered by hydro power. 

  • De-carbonization is very supportive of mid-term and long-term aluminium prices.  In the mid-term, pressure within China to reduce energy intensity should act as a supply constraint (aluminium consumes ~7% of all the power in China versus ~1% contribution to GDP).  In the long term, the addition of carbon pricing should significantly raise the incentive price of new capacity up to ~$2,400-2,600/ton.  Smelters sourcing renewable power should see structurally higher margins.
  • Western aluminium producers are generally well positioned, with 60%+ of smelting capacity powered by hydro power. This positions them to benefit from carbon border adjustment mechanisms (i.e., taxing carbon contained in imported metal at the border) and green premiums.  Customers are already asking for greener products.
  • Aluminium has many green properties, including greater recyclability than plastics and lighter weight than steel.  90% of aluminium is already recycled.  The US EPA previously reported that 68% of aluminium beverage can content is recycled versus 3% for plastic drink bottles.

Global CO2 “Cost Curve”


Sources of CO2 in the Aluminium Production Chain

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Source: Wood Mackenzie; Citi Commodity Research


Source: IAI; Citi Research


Supply and Demand of Green Aluminium

The chart below shows the geographic sources of 15mt green aluminium.  The majority comes from Europe (especially Norway), Russia, and Canada.  There’s clearly ample supply.   

  • The EU is leading the way on this issue and has <4mt of demand that can easily be met from within EU and Russia.  
  • North America demand could mostly be met from Canada, with potential extra supply from Russia.  
  • Japan and Korea demand could be swing factors, with ~3mt of potential demand.


Sources of Green Aluminium versus Potential Demand

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Note: Green = likely first movers; Yellow = potentially second movers
Source: Citi Research




Producing primary aluminium from recycled content consumes about 5% of the energy required to make virgin aluminium and avoids up to 95% of the energy-related emissions.

According to the International Aluminium Institute (IAI), the industry needs to increase post-consumer scrap recycling by 55% over 2018 levels by 2030 to achieve industry decarbonization goals for the 1.5-degree scenario outlined in the Paris Agreement.

Approximately 75% of all primary aluminium ever produced is still in productive use given its strength, product life, and recyclability. This compares favorably with a recycling rate of only <10% for plastics.

Producers normally recycle aluminium in casting and rolling operations, using both internal and purchased scrap. Some smelters also have closed-loop processes in place with customers, whereby aluminium scrap from their operations is returned for reuse. The recycled content excludes all internally generated scrap and re-melted primary ingot (see this Citi Global Perspectives & Solutions (GPS) report (Citi GPS: CLOSING THE LOOP ON GLOBAL RECYLING - Finding a Global Solution to the Patchwork of Recycling) for more information.

About 30% of the aluminium in the world is produced via recycling (secondary production) and ~70% via smelters (primary production).  The percentage produced via secondary production was steadily rising until c.2000, when China’s huge smelting capacity started to arrive. In the future, China should produce and consume more scrap as its stock of aluminium starts to age out.

Aluminium Production Through 2050: Primary Smelting versus Scrap

Source: IAI, Citi Research


Aluminium demand will benefit from de-carbonization initiatives.

  • Average aluminium intensity in passenger cars should increase to 230kg per unit for battery electric vehicles from 180kg for internal combustion engine cars.
  • Renewable power is more aluminium intense than traditional sources, with solar energy using 13 tons per MW, wind 2.4-3.6 tons per MW (offshore and onshore), and coal & gas 0.5 tons per MW. 

Citi estimates that renewable power installations are set to drive average growth of 77kt per annum in aluminium demand between 2025 and 2040 based on BNEF’s installation forecasts. For more information on this subject, please see Citi Research’s North America Metals & Mining - Global Green Aluminium report, published November 22, 2021.

Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.


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