EU and UK Move Toward Linking Carbon Markets

EU and UK

The EU and UK have formally agreed to work toward linking their carbon emissions trading systems (ETS), a move expected to benefit both industries and climate policy alignment. The announcement, made during a summit in London, emphasized that a EU and UK carbon markets link would support fair trade and reduce carbon leakage between jurisdictions. According to the joint statement, such a link would also exempt both regions from their respective carbon border adjustment mechanisms (CBAM), providing a more level playing field for domestic industries while maintaining environmental ambition.

ETS Link Could Unlock Significant Economic Gains

The linking of the EU and UK carbon markets could generate significant cost savings. UK Prime Minister Keir Starmer claimed British businesses could save £800 million in EU carbon taxes, while a recent industry-commissioned study projected up to €1.2 billion in savings from lower hedging costs due to improved market liquidity. While there is no timeline for implementation, market participants note that linking the Swiss ETS to the EU’s system took nearly a decade. Still, the potential economic efficiency and regulatory clarity have made the EU and UK carbon markets discussion a top priority for energy-intensive sectors across Europe.

Shared Climate Goals, Independent Ambitions

The agreement stressed that neither side should be constrained from pursuing more ambitious climate goals. The UK’s ETS remains guided by the legally binding Climate Change Act and its Paris Agreement commitments. The UK targets a 68% GHG reduction by 2030 and 81% by 2035, compared to 1990 levels. The EU aims for a 55% net reduction by 2030 and is still shaping its 2035 benchmark. Despite regulatory differences, both jurisdictions reaffirmed their commitment to net-zero emissions by 2050. The agreement also includes cooperation on hydrogen, CCS, biomethane, and a potential UK entry into the EU’s internal power market—further aligning EU and UK carbon markets within a broader clean energy framework.

The Metalnomist Commentary

The potential linkage of EU and UK carbon markets signals a return to pragmatic climate diplomacy. While structural alignment will take time, the economic and environmental incentives suggest both sides are committed to meaningful integration—setting a precedent for future carbon market collaborations globally.

Japan’s Sumitomo Chemical Exits Brazilian Aluminium Refining: Focus on Business Optimization

Sumitomo Chemical

Japanese petrochemical giant, Sumitomo Chemical, has sold its 2.97% stake in Nippon Amazon Aluminium Co. (NAAC) to YKK AP, a domestic architectural goods supplier, as part of its broader business optimization strategy. With this transaction finalized on December 19, YKK AP's stake in NAAC has risen to 6.31% from 2.02%. While the financial details of the transaction were not disclosed, the move signifies a strategic shift for Sumitomo Chemical as it exits overseas aluminium refining operations.

NAAC holds a 49% stake in Aluminio Brasileiro S.A. (Albras), a Brazilian aluminium refiner renowned for producing 450,000 tons of aluminum ingots annually. Albras operates using renewable energy, making it a key player in reducing CO2 emissions in the aluminium production process. This aligns with growing global demand for sustainable and low-carbon aluminium products.

YKK AP's Green Aluminium Expansion

The deal positions YKK AP to double its aluminium ingot output, an important milestone in its efforts to procure green aluminium feedstock and decarbonize its operations. The company uses approximately 140,000 tons of aluminium annually within Japan. This acquisition is part of YKK AP's push to adopt sustainable materials and strengthen its competitiveness in the eco-conscious global market.

Sumitomo Chemical’s Broader Realignments

Sumitomo Chemical’s decision to sell its NAAC shares marks a complete withdrawal from the overseas aluminium ingot business. The company cited high profitability volatility in imported aluminium markets, largely influenced by fluctuating global aluminium prices. Earlier in the year, Sumitomo Chemical divested its shares in New Zealand Aluminium Smelters and Boyne Smelters to Rio Tinto, the UK-Australian mining conglomerate.

The company has also exited from two polypropylene (PP) compound manufacturing subsidiaries in China due to intensifying competition from local producers. Announced on December 18, this move reflects Sumitomo Chemical’s focus on optimizing its business portfolio by concentrating on more stable and profitable ventures.

European Aluminium Industry Pushes for Scrap Export Restrictions

Al scrap

Rising Pressure for Scrap Export Controls

The European aluminium scrap market is facing mounting pressure as supply tightness collides with strong export demand. Industry groups such as European Aluminium and Aluminium Deutschland have intensified lobbying for export tariffs to secure domestic scrap supply. Their push comes as the US raises tariffs on primary aluminium imports, potentially boosting American demand for European scrap.

Exports of European aluminium scrap surged in recent years, particularly to Asia. The EU and UK together shipped 1.57mn tonnes in 2024, a 23pc increase compared with 2022. India and China accounted for the bulk of these flows, while exports to the US, though smaller, grew sharply. European Aluminium warned that rising US interest, combined with current supply shortages, risks creating a “full-blown scrap crisis.”

Industry Debate and Market Risks

However, not all stakeholders agree that restrictions are the solution. Scrap merchants argue that supply shortfalls are driven more by weak industrial activity than by exports. Low production in automotive, construction, and machinery has reduced available grades like aluminium turnings, which are essential for European secondary smelters. They caution that tariffs may not address these structural issues and could trigger reciprocal trade barriers, complicating Europe’s own scrap imports.

At the same time, many producers identify high energy costs as the bigger threat to smelter viability. Merchants note that no smelter closures have been directly tied to scrap shortages, while escalating electricity prices have forced cutbacks. Despite this, calls for restrictions continue to gain traction, reflecting a broader trend of resource nationalism as countries prioritize domestic recycling over exports.

The Metalnomist Commentary

The debate over aluminium scrap export restrictions underscores a critical tension between free trade and industrial security. While tariffs may stabilize domestic availability, they risk distorting markets and inviting retaliation. The EU must weigh these risks carefully, especially as global competition for low-carbon feedstock intensifies. Energy costs, more than scrap scarcity, remain the sector’s existential challenge.

Rio Tinto to Test Titanium and Scandium Sorting Technology

Rio Tinto Titanium Mining

Rio Tinto Invests in Ore-Sorting Innovation

UK-Australian mining firm Rio Tinto will invest C$7.6mn ($5.6mn) to test a new ore-sorting technology at its Lac Tio mine in Quebec, Canada. The technology will sort ore based on titanium and scandium content directly at the source, reducing the amount of material transported to Rio Tinto’s iron and titanium metallurgical and critical minerals complex in Quebec.

The government of Quebec will contribute C$2.5mn ($1.8mn) through its support program for critical and strategic metals processing. This partnership underscores the region’s focus on developing advanced processing capacity for critical minerals.

Importance of Titanium and Scandium in Global Markets

Rio Tinto’s Quebec operations already produce titanium dioxide, covering 19% of global demand, alongside scandium oxide. Titanium dioxide is widely used in pigments and sunscreens, while scandium oxide plays a vital role in high-strength aluminum alloys for aircraft, as well as in electronic ceramics and glass.

As a result, the new sorting technology has the potential to increase efficiency, reduce carbon intensity, and strengthen North America’s position in critical minerals supply chains. By advancing titanium and scandium processing, Rio Tinto could also enhance the security of supply for industries facing rising demand.

The Metalnomist Commentary

Rio Tinto’s investment in titanium and scandium ore-sorting technology signals a clear shift toward greater efficiency and sustainability in critical minerals. By reducing transport needs and improving resource utilization, the project strengthens Quebec’s role as a global hub for strategic materials. This initiative also highlights the increasing importance of scandium, a rare but essential element for advanced manufacturing.

Europe Faces Challenges in Strategic Battery Funding Amid Market Oversupply

EU Battery

European countries are struggling to adopt a unified and strategic approach to funding domestic battery supply chains as global oversupply of battery materials, led by China, continues to push prices lower through at least 2030. These issues were a key focus of the Future Battery Forum held this week in Berlin, Germany.

Oversupply in Battery Materials

The battery materials market, including nickel and cobalt, faces oversupply due to significant production increases from Indonesia and the Democratic Republic of Congo (DRC). According to Siyamend Al Barazi, head of unit mineral economics at Germany’s Dera (German Mineral Resources Agency), "markets will be oversupplied at least until 2030." China's state subsidies, estimated at $230 billion from 2009 to 2023, have further contributed to this glut, maintaining downward pressure on global prices.

European Critical Raw Material Challenges

Despite the establishment of the EU Critical Raw Material Act (CRMA), which identifies 34 critical and 17 strategic materials vital to green and digital technologies, European funding efforts fall short of addressing the massive investment needs for battery material production and processing.

In September, Germany's KfW bank approved a €1 billion raw materials fund, while similar initiatives were launched by Italy, France, and the UK. However, panelists at the forum, including Jonathan Vanherberghen from Rio Tinto, argued that these amounts are insufficient for large-scale projects. For example, the capital expenditure for Rio Tinto's Jadar lithium project in Serbia alone stands at $2.5 billion.

Fragmented Funding and Industry Concerns

The fragmented funding landscape in Europe has made it difficult to pool resources effectively. Vanherberghen noted that funds like KfW’s could be more impactful if extended over longer periods to accommodate changing market cycles. Similarly, Cris Moreno, CEO of Vulcan Energy, highlighted that funding of at least $1 billion annually is required to meet the region’s ambitions. Moreno’s own lithium project in Germany has an estimated cost of $1.4 billion.

Despite the challenges, these funding initiatives provide some support by attracting institutional investors and fostering collaboration with car manufacturers, which are under increasing pressure to meet carbon targets and ESG (Environmental, Social, and Governance) standards.

Toward a Unified European Strategy

Experts at the forum emphasized the need for a more unified and sizeable funding mechanism to bolster Europe’s battery supply chain. A single, cohesive approach would allow Europe to compete with countries like China, South Korea, and Japan, where government support for raw material projects is significantly more robust.

Vanherberghen concluded, "Funds like that will only support projects with the highest ESG standards. Bringing these things together could create a much more effective system than the fragmented approach currently in place."