Billions to flow from US government into metals; energy key | Hotter Commodities

The funding is being allocated from the Bipartisan Infrastructure Law and Inflation Reduction Act and joins investments in 33 projects across chemicals and refining, cement and concrete, pulp and paper, process heat, glass, and food and beverages.

These include the so-called hard-to-abate industries, which account for around 30% of greenhouse gas emissions in the US and lack the necessary access to technology or financing to decarbonize.

The funding process is being organized by the Department of Energy’s Office of Clean Energy Demonstrations (OCED), which plans to grant $6 billion through its Industrial Demonstrations Program.

It is a great boost for sustainable finance – but it is just a start. Climate finance worldwide still has not reached the necessary scale for mobilizing the funds it will require to cut emissions and achieve climate goals.

According to the Securities Industry Financial Markets Association, global investment in the sustainable finance market needs to grow by between $3 trillion and $5 trillion annually to achieve the net-zero ambitions set out in the 2015 Paris Agreement.

First aluminium smelter in decades

While there is still a long way to go, the financing is an important development for aluminium, which looks set to build the first smelter in the US for 45 years.

The last smelter to be constructed in the US was in 1980, when aluminium producer Alumax and Clarendon, a unit of Marc Rich, built the Mt Holly plant in South Carolina. That plant, one of the few left in the country, is now owned by Century Aluminum, which is the company that plans to build the new smelter.

The US has seen the slow but steady eradication of its aluminium smelting industry over the past several decades. Not a great look for an industry that is critical to economic and national security due to its defense, aerospace, electricity and transportation uses.

The US was the world’s biggest primary aluminium producer in the world in 2000; it is currently the ninth. There were 23 US smelters in 1993 but as of January 2024 there are only four in operation, with the vast majority of the world’s aluminium now produced in Asia, Russia, and the Middle East.

Over the decades, the US has come to work closely with Canada to supply its aluminium needs. The country supplies about 45% of US primary metal needs, with about 89% of Canada’s aluminium production destined for its neighbor.

Aluminium premiums in the US do not reveal a dramatic market tightness and suggest that, despite high tariffs on Russian aluminium and a spike in Chinese metal imports, the sector is relatively well-supplied, at least for now.

In fact, the market is currently in a small surplus which is consensually expected to deepen through the next couple of years.

According to Fastmarkets analyst Andy Farida, the global aluminium market surplus was 153,000 tonnes last year, and is forecast to be 227,000 tonnes in 2024 and 324,000 tonnes in 2025. Not exactly massive in the grand scheme of things, although a disruption to supply could obviously reverse this very quickly.

“A new domestic smelter puts the US back in the game and reverses our dangerous, decades-long decline in primary aluminum production,” said Joe Quinn, director of the Center for Strategic Industrial Materials at bipartisan organization SAFE.

“The Biden administration is now appropriately prioritizing the ‘miracle metal’ as part of the US’ reindustrialization strategy. This is an important first step, but the US’ work is far from over,” he added.

The reason for the decline in US production is simple: the high cost of energy. This is something that all companies operating the energy-intensive process to produce aluminium have struggled with in the US, including Century Aluminum.

Century is eyeing Kentucky for the site of its new plant, although has said it will look at possible locations within the Ohio/Mississippi River Basins. Kentucky is the site of its Hawesville and Sebree smelters, with the former operation having been idled in July 2022 – amid soaring energy prices.

It therefore makes sense that a common theme running through the planned investment package is the use of carbon-free energy. With around a third of aluminium production costs coming from energy, the use of technology to reduce this burden is critical.

Recycling, steel

Developing further copper and aluminium recycling is a no-brainer in terms of the energy transition, enabling the twin goals of creating a circular and therefore domestic economy along with the reduction of carbon emissions.

Over $434 million in government funds will be available for projects by Wieland North America Recycling, Constellium, Golden Aluminum and Real Alloy Recycling.

Over 70% of aluminium beverage cans are recycled into new products today, but this impressive figure still falls short of making the complete contribution necessary for achieving global climate goals. There is even further to go in copper, which has a recycling rate of around a third in the US, recent data by the Copper Development Association shows.

In steel, the focus is on eliminating the vast majority of steelmaking emissions. The goal, the DoE says, is to help decarbonize iron and steelmaking and enable the industry to phase out more traditional carbon-intensive production methods that rely on coal.

Over $1.5 billion will be available for projects by SSAB, Cleveland-Cliffs Steel Corporation, American Cast Iron Pipe Company, United States Pipe and Foundry Company, and Vale USA.

The steel sector has been working for some time on transformative technologies, such as hydrogen-steel production, electrolysis of iron ore, and carbon capture and utilization storage.

Lourenco Goncalves – chairman, president and chief executive officer at Cleveland-Cliffs – has described hydrogen as “the true game changer for the decarbonization of steel.”

There is, of course, plenty more work to be done, including permitting reform to cut the lengthy process for new projects, and the hunt for critical minerals like nickel, rare earths and cobalt, which will require looking internationally for partners in natural resources.

With more funding initiatives expected to be announced in the coming months, the starting gun in the race to secure decarbonized supply chains has well and truly begun.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.