LME Targets Growth in Green Aluminum With Spot Trading Platform
(Bloomberg) -- The London Metal Exchange has laid out plans to create a spot market for low-carbon aluminum and other products that look set to play a growing role in the green energy transition.
The spot platform will operate as an accredited marketplace for producers of green and recycled aluminum, and could in the future expand into other sectors, such as specialized alloys. The bourse is seeking views on its proposals and expects to launch the trading system in the first half of 2021, it said on Thursday.
Aluminum is the most energy-intensive industrial metal to make, and the vast majority of smelters do so using coal-fired power. Hydropower offers a greener alternative, and the handful of producers who use the renewable energy source have long been calling for it to be recognized as a premium product. With traders moving into the sector, and consumers such as Apple Inc. partnering directly with green aluminum suppliers, the development of the market is fast gaining traction, LME Chief Executive Officer Matthew Chamberlain said in an interview.
“We need to ensure that the whole of our market keeps pace with the revolution in sustainability in the physical industry,” Chamberlain said. “Not only does it create a commercial upside opportunity for ourselves and for the industry but in the long run protects the LME, the market, and its pricing.”
Sales of green aluminum usually take place directly between buyers and producers, without the need for an exchange. But the LME is alert to the risk that the fast growth of the market could end up with the exchange becoming a “dumping ground” for the lower value high-carbon version of the metal, Chamberlain said.
The LME is seeking to add value with a so-called digital passport for metal that will give buyers confidence in the quality of products they’re sourcing. It’s an upgrade from the previous, laborious paper-based system which will also allow producers to highlight sustainable credentials beyond the scope of the traditional certificates of analysis, and can be used to underpin sales taking place in the wider physical market. Buyers will also be able to seek out offers for specific qualities of metal from multiple sellers simultaneously.
In the future, trades taking place on the spot platform could produce a “very visible, very credible spot low-carbon price,” according to Chamberlain, which could form the basis of a new, green aluminum futures contract. The criteria for other sustainable products could also be included on the platform, which would be dependent on demand, and other materials such as aluminum alloys may also eventually be added.
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