Introduction: A Structural Break in Aluminium
Three forces are reshaping global aluminium flows:
- EU CBAM (Carbon Border Adjustment Mechanism) introduces a carbon levy on imported metal, dividing supply into “clean” and “dirty” pools.
- US tariffs and localisation policies restrict imports based on origin rather than carbon content.
- China’s 45 Mt (million tonnes) primary cap limits domestic growth, pushes new smelting capacity offshore, and accelerates investment in secondary production, although scrap availability and collection infrastructure remain structural constraints.
Unlike previous cycles, the emerging surplus will not depress global prices uniformly. CBAM, US tariffs, EU scrap retention and LME deliverability rules increasingly restrict where different types of metal can flow. The LME will remain the global benchmark, but the physical market is splitting into a premium corridor for verified clean metal and a discount corridor for high-carbon and non-compliant supply
- Clean‑metal premium corridor: Europe, North America, Japan and Korea.
- Dirty‑metal discount corridor: UK (softer CBAM), Turkey, India, ASEAN and the Middle East.
Where the Indonesian surplus ends up, and whether it moves closer to the LME deliverable ecosystem, will set the tone for premiums, forward curves and trade flows. While Indonesian producers could, in theory, pursue lower-carbon pathways and eventual LME brand accreditation, the current energy mix, MRV (Measurable Reporting Verification) limitations and responsible-sourcing requirements make near-term deliverability highly unlikely.
CBAM: Clean‑Metal Premium
- Transitional phase (to end‑2025): importers must report direct and indirect emissions, but no CBAM certificates are required yet.
- Cost phase (from 1 January 2026): CBAM certificates linked to the EU ETS price apply to direct emissions; indirect emissions remain report‑only initially.
- Differentiated costs: certified low‑carbon metal faces minimal levies; higher‑carbon metal pays more; unverified or coal‑based metal is assessed at punitive default values.
As the regime tightens through to 2030, Europe becomes the premium buyer of clean aluminium, while high-carbon and unverifiable material is pushed toward alternative markets. There is also growing debate in the EU about whether downstream products, such as vehicles containing high-carbon aluminium, may eventually face carbon-adjustment measures of their own, though this remains speculative and outside the current CBAM scope. See a summary of the products included at the end of this note.
Scrap Dynamics and Retention
CBAM encourages low‑direct‑emission inputs, making scrap and secondary aluminium the cheapest compliant feedstock. As Europe pivots toward secondary billet and slab:
- Scrap balances tighten globally, with China (capped at 45 Mt) bidding aggressively for high‑grade scrap.
- A feedback loop develops: CBAM raises scrap demand → scrap supply tightens → secondary billet tightens → demand shifts back into clean primary → clean primary premiums The effect is expressed through regional premia rather than outright prices, with producer margins improving as the premium-to-3-month ratio strengthens.
The planned EU ban on scrap exports from spring 2026 will lock more scrap inside Europe. This prevents leakage of scrap to China or ASEAN when secondary aluminium is critical for decarbonisation. It tightens EU and global scrap markets, supports higher EDP billet premiums and reinforces CBAM as a structural filter by depriving external markets of high‑grade feedstock.
Indonesian Expansion: Surplus with Limited Premium Access
Indonesia’s new smelters are coal‑powered, Chinese‑financed and opaque in emissions data. They are high in indirect emissions, ineligible for CBAM and incompatible with LME responsible‑sourcing criteria.
Consequently, Indonesian output is effectively barred from:
- The EU: due to CBAM.
- The US: because of a 50% tariff wall.
- Japan: where mills and OEMs stick to long‑established brands with stable impurity profiles.
- Korea: where automakers and electronics producers avoid high‑carbon inputs under K‑ETS and EU CBAM compliance; and
- LME deliverability.
The surplus will therefore flow largely into the discount corridor: UK, Turkey, India, ASEAN and the Middle East.
Freight: Two Distinct Signals, with a More Complex Route Structure
Indonesia’s outbound logistics are anchored by large, regular flows of nickel ore and ferronickel. China is the largest buyer, but South Korea, Japan and parts of Southeast Asia also receive significant volumes. These routes operate at predictable frequencies and form anchor corridors supporting stable vessel utilisation.
- Nickel‑anchored routes (Indonesia → China/Korea/Japan): Aluminium piggybacks on existing nickel logistics. Early signals of surplus are capacity‑driven-higher load factors, extra sailings, vessel upsizing and congestion- rather than price‑ Freight rates may stay stable.
- Emerging aluminium routes (Indonesia → UK, Turkey, Middle East, parts of South Asia): On corridors where nickel volumes are low or irregular, carriers have no established baseload. They may initially lower freight rates to secure anchor cargo and build regular aluminium flows. Prices can soften before stabilising once aluminium becomes a regular component of the trade.
The direction of tightening matters as much as pricing:
- Tightness on Indonesia–China/Korea/Japan lanes = aluminium being absorbed into established nickel corridors (no LME proximity signal).
- Tightness on Indonesia–ASEAN lanes = regional discount corridor absorption.
- Tightness on Indonesia–UK or Indonesia–Turkey routes = surplus moving westward.
- Tightness on Indonesia–Malaysia = high‑carbon metal moving closer to major LME‑adjacent logistics, even if non‑
Tightness on Indonesia–China/Korea/Japan routes signals aluminium is being absorbed into the established nickel export system. These routes are industrial in nature and not LME-adjacent for aluminium.
Shipments to China are fully expected; shipments to Korea or Japan would be more unusual given their strong preference for low-carbon or long-established brands.
Expectations
- A shallower contango than in past oversupply cycles. Near-term LME prices should remain supported by the absence of a meaningful on-warrant overhang. Any increase in Indonesian-origin supply will still face responsible-sourcing, traceability and MRV constraints, limiting its ability to enter the LME-deliverable pool. The key freight signal to watch is Indonesia–Malaysia. Tightening on this route would indicate surplus metal moving closer to an LME-adjacent warehousing hub, with bearish implications for the curve structure even if the aluminium remains non-deliverable.
- Scrap dynamics remain one of the strongest sources of price support. Scrap pricing is firm globally as primary producers retain shredded grades to lower carbon intensity, removing significant tonnage from the open market. Combined with structurally weak European scrap generation and ongoing Asian import demand, this reduces secondary production capacity, forces more demand back onto primary metal, and supports both LME prices and clean-physical premia even in a nominal primary surplus.
- EDP premiums are expected to remain structurally firm, with Europe acting as the marginal buyer of certified clean aluminium despite its limited net primary imports. These premiums are likely to soften later in 2026 as EU scrap-export restrictions retain more scrap within the bloc, albeit in limited supply, improving domestic secondary availability and reducing reliance on clean primary.
- Premiums in the UK (to some extent) and across ASEAN will remain structurally weaker, as these regions serve as the clearing markets for high-carbon surplus metal from Indonesia and China. Surplus pressure therefore concentrates on the discount corridors rather than Europe, widening the divergence between clean-metal and high-carbon premia. Freight behaviour reinforces this pattern. Rising Indonesian shipments into ASEAN indicate softer regional premia as surplus is absorbed locally, while flows into China or Korea simply reflect integration into established industrial routes rather than pressure on clean-metal markets.
CBAM Aluminium Inclusions (Summary List)
CBAM applies to raw and semi-finished aluminium imported under CN Chapter 76, specifically:
- Unwrought aluminium (CN 7601)
Primary metal such as P1020, remelt ingot, sow, T-bar, foundry alloys. - Bars, rods, profiles (CN 7604)
Includes extrusion billet and structural profiles. - Aluminium wire (CN 7605)
- Plates, sheets, and strip ≥0.2 mm (CN 7606)
- Foil <0.2 mm (CN 7607)
- Tubes and pipes (CN 7608)
- Tube and pipe fittings (CN 7609)
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