Fastmarkets is updating market participants on its initiative to price the physical low-carbon aluminium market.
Due to feedback received already, Fastmarkets has narrowed down the possible options for a pricing mechanism and streamlined the consultation.
This update is part of
the original consultation that launched on September 1 and is due to close on December 1.
Low-carbon differential
Fastmarkets now proposes to launch a differential for low-carbon aluminium, which can be priced as either an upcharge or a discount to the current P1020 aluminium and value-added product premiums.
There was some support in the market for launching a separate price for low-carbon aluminium but upon further feedback, Fastmarkets believe this could split liquidity on current premium offerings and therefore a separate differential would be more suited to the market.
The differential would also allow market participants to hedge existing underlying legacy premiums including the Rotterdam duty-unpaid and paid premiums.
Fastmarkets received minimal support for the third option: differentiation of green brands in current premiums.
Definition of low-carbon aluminium
Feedback from the market remains split as to whether Fastmarkets should launch a pricing mechanism based on 4tCO2e per tonne of aluminium or 8tCO2e per tonne of aluminium.
Market participants say a pricing mechanism based on 4tCO2e would narrow the liquidity captured for low-carbon aluminium, but also gives Fastmarkets the opportunity to capture differentiating trades for low-carbon aluminium in the future.
On 8tCO2e, market participants say it would allow for Fastmarkets to capture more liquidity. But in markets such as Europe, products produced from smelters with 8tCO2E are already captured within Fastmarkets' existing suite of prices, meaning that it would be difficult to capture distinctively differentiating trades for low-carbon aluminium. It would also increase the risk of double counting deals as a result.
We are still inviting feedback on which of these options to move forward and will engage in discussions with the relevant market organizations.
The third option of brand distinction (using a list of brands that advertise themselves as "green aluminium") found little support.
Products
Fastmarkets has narrowed down the options for what products need a low-carbon aluminium differential to:
A) P1020A only;
B) P1020 separate pricing mechanism, and separate pricing mechanisms for aluminium billet and aluminium foundry;
C) P1020 separate pricing mechanism, and a separate pricing mechanism for a basket of all value-added products (billet, foundry, wire rod, slabs etc)
Location
Fastmarkets has received most feedback in support of launching the pricing mechanism focused on Europe first, due to the potential for more low-carbon related government policies to spur liquidity in the region.
The possibility of launching other locations, such as Asia and the United States, once the European pricing mechanism is in place remains.
Fastmarkets continues to invite feedback if you think we should also focus on other areas first.
Pricing frequency
Upon its launch, Fastmarkets proposes that a low-carbon aluminium pricing mechanism be priced at a quarterly basis. Fastmarkets understands market participants signing deals for low-carbon aluminium contracts, are doing so on a longer-term basis.
To provide feedback on the updated ideas above, please contact Alice Mason and Justin Yang by email at
pricing@fastmarkets.com. Please add the subject heading 'FAO: Alice Mason/Justin Yang, re: Green Aluminium.'
To see all Fastmarkets' pricing methodology and specification documents go to
https://www.fastmarkets.com/ about-us/methodology.