EU Scrambles for Aluminium as Iceland Smelter Outage and Looming Carbon Tax Squeeze Supply

European aluminium buyers are rushing to secure metal supplies after a major outage at Iceland’s Grundartangi smelter collided with a looming EU carbon tax, sending regional premiums to a nine-month high. The duty-paid premium has climbed to $324 per ton-briefly touching $330 in early November-its highest level since January.

The 320,000-ton-per-year Grundartangi plant, operated by Century Aluminum, slashed production by two-thirds in late October after an electrical equipment failure. Replacement transformers will take 11–12 months to build, ship and install, though repairs to damaged units could enable an earlier restart. The disruption is significant: Iceland was the EU’s second-largest aluminium supplier in the first eight months of 2024.

At the same time, European importers are accelerating purchases ahead of the EU’s Carbon Border Adjustment Mechanism (CBAM), which will impose a carbon price on aluminium entering the European Economic Area from January 2026, with payments due in 2027. Analysts say buyers are both avoiding future carbon costs and trying to minimise the administrative burden of the new regime.

CBAM fees will vary based on the emissions intensity of the smelter producing the metal. Low-carbon producers in the Middle East and Canada may face relatively modest charges of €10–50 per ton, while older, high-emitting facilities could be priced out of the EU market. Aluminium produced within the EEA, including by Norsk Hydro and Icelandic smelters, will be exempt-further tightening competition for compliant supply.

Aluminium supply tightness alongside CBAM taking effect will reveal how thinly hedged European users actually are on embedded-emissions exposure. Our supply-chain-and-operations and market-intelligence teams help downstream aluminium buyers evaluate supplier options against CBAM cost, embedded-carbon verification and long-term availability.