Rising recycled aluminium use in packaging is prompting buyers to examine how primary-metal benchmarks allocate price risk, while the EU Carbon Border Adjustment Mechanism (CBAM) adds another variable to commercial negotiations.
A Fastmarkets roundtable published on September 9 examined packaging products in which recycled aluminium can account for as much as 80% of the material. That figure applies to certain rolled packaging products and does not describe the packaging market as a whole.
The discussion highlighted differences between primary and secondary aluminium markets, which can respond differently to trade measures, energy costs and carbon rules. As a result, a primary-metal benchmark may not move in line with the specific material mix used by an individual producer.
Primary benchmarks and recycled material
A primary-linked pricing formula does not necessarily mean that a customer is being overcharged. Such formulas can be designed to allocate market risk between the parties rather than mirror the producer’s precise cost structure.
Any assessment of excessive pricing would therefore require examination of the individual supply agreement, including the benchmark and the commercial terms attached to it.
For buyers, the relevant comparison is between the price exposure established by the contract and the specification of the aluminium supplied. Altering the benchmark without reassessing the product specification could replace a transparent pricing mechanism with a less transparent negotiated arrangement.
CBAM adds another cost-allocation issue
The increasing use of recycled aluminium also does not provide a complete picture of production economics. Material, conversion and energy costs can vary among suppliers even where products have comparable recycled-content claims.
CBAM introduces a separate consideration into the commercial relationship because buyers and sellers must distinguish between the economics of the physical aluminium and the carbon costs associated with imports under EU rules.
The treatment of those costs consequently needs to be considered alongside, rather than automatically incorporated into, the underlying metal-price formula.
The central contractual issue is therefore how the agreed index is intended to function: whether it reflects the product’s inputs, represents the broader aluminium market, or establishes an agreed allocation of market risk between buyer and supplier.
