Iceland Outage Sparks EU Aluminum Premium Surge

Introduction

Last week saw two concrete developments that directly affected aluminum pricing in Europe: a major electrical failure at Iceland’s Grundartangi smelter that cut significant primary supply, and EU policy steps to restrict aluminum scrap exports to protect domestic recycling. Combined with the upcoming Carbon Border Adjustment Mechanism (CBAM) and persistent energy-cost differentials, these events have tightened availability and pushed physical premiums higher.

Supply shock: Grundartangi outage and immediate effects

What happened

An electrical equipment failure at a major smelter in Grundartangi, Iceland, forced operators to halt a large portion of production. The outage removes hundreds of thousands of tonnes from near-term European primary supply, with repairs expected to take many months.

Price impact and market response

European duty-paid premiums for spot physical aluminum spiked following the outage, reaching levels not seen in months (near $320–$330 per tonne in recent trade). Buyers and traders reacted quickly: importers front-loaded shipments and sought alternative low-carbon suppliers to avoid both near-term shortages and the administrative and cost burdens expected under CBAM when it takes effect.

Policy shift: EU scrap export controls

The new direction

European institutions announced measures intended to keep more aluminum scrap inside the region to feed secondary smelters and support recycling targets tied to decarbonization. Measures under consideration include export levies, tighter customs controls, or recycled-content requirements for downstream manufacturers.

Why this matters for prices and flows

• Recycled aluminum is lower-carbon and increasingly prized under decarbonization regimes; restricting exports preserves feedstock for local secondary producers.
• If scrap exports fall, global scrap availability tightens—supporting premiums for both primary and secondary metal where demand is strong.
• Countries or regions that historically imported European scrap (notably parts of North America) may face higher input costs, shifting arbitrage and trade flows.

Structural drivers reinforcing the move

CBAM and the incentive to buy early

With CBAM implementation approaching, importers are motivated to purchase now to avoid higher implicit carbon costs and extra paperwork. This behavior amplifies short-term demand, putting upward pressure on physical premiums above LME benchmark prices.

Energy costs and the U.S. production picture

Longstanding differences in power pricing—especially higher industrial electricity costs in the U.S. compared with some neighboring jurisdictions—continue to limit the economics of reviving large-scale primary smelting. That structural reality has increased reliance on recycled aluminum in North America, making scrap flows a strategic resource rather than a mere byproduct.

Implications for market participants

Buyers and converters

Companies that need low-carbon or readily available metal should consider diversifying supply chains, negotiating forward deals with low-carbon producers (including those in Norway or Iceland where applicable), and increasing recycling partnerships to lock in scrap access.

Recyclers and secondary producers

Recyclers stand to benefit from tighter local scrap availability and potential policy support, but must manage logistics and feedstock sourcing carefully if export routes narrow and global competition for scrap intensifies.

Traders and arbitrageurs

Volatile premiums and shifted trade flows create short-term trading opportunities. Traders who can pivot quickly between regions and grades—especially lower-carbon, certified material—will be best positioned to capture spreads.

Conclusion

The combination of the Grundartangi smelter outage and EU moves to restrict scrap exports has created a tangible supply squeeze in the near term, lifting duty-paid premiums and altering scrap flows. These developments, coupled with CBAM-driven front-loading and persistent energy-cost disparities that limit primary production resurgence in some regions, mean physical availability and recycled feedstock will be the decisive price drivers for aluminum in the months ahead.

Market participants should treat scrap as a strategic input, reassess sourcing strategies, and prepare for continued premium volatility as Europe balances decarbonization objectives with industrial demand.