BOSTON – August 23, 2023 – The market for green commodities is massive and it is scaling quickly. In Europe alone, about 15%-25% or 25 million to 35 million metric tons of steel production is expected to be low carbon by 2030. Based on expected prices, this volume represents a $20 billion to $30 billion market, a five-fold increase from 2025.

According to Bain & Company’s latest report, upstream commodity producers must act fast to unlock the market potential for green commodities and fast-track the global transition to sustainable metals and chemicals. However, producers face major challenges to drive demand for green commodities. Low-carbon alternatives to steel, aluminum, and other raw materials are expensive to produce and priced at a premium.

“Leading producers are partnering with customers that are ready to incorporate green raw materials into their products. They are also adapting their commercial strategies to help stimulate near-term demand and accelerate the transition. These producers understand that establishing an early leadership position in sustainable commodities will secure long-term market advantages,” said Mattias C. Karlsson, a Stockholm-based partner at Bain & Company.

Bain suggests three key guidelines to set producers up for success as demand for green commodities grows.

Focus on the early adopters. Manufacturers that stand to benefit most from decarbonizing their operations will fuel the initial demand for low-carbon raw materials. Producers that understand the customer’s value chain and decarbonization goals are better able to identify potential early adopters and make a strong case for switching to green commodities.

In autos with internal combustion engines, for instance, steel typically accounts for 40% to 45% of the original equipment manufacturers’ (OEMs’) upstream Scope 3 emissions. Aluminum accounts for 5% to 10% of Scope 3 emissions. So, for traditional automakers, steel and aluminum are likely to be top decarbonization priorities.

In electric vehicles, however, battery cells make up most of the upstream emissions (35% to 40%), with steel and aluminum accounting for a combined 20% to 25%. That means electric vehicle OEMs are likely to focus first on greener battery cells as opposed to low-carbon metals.

Adapt the value proposition and sales capabilities. Low-carbon commodities deliver value by helping customers build a brand, by differentiating a company from its competitors, and by decarbonizing their supply chain. Once leaders determine the benefit of green products for customers, they tailor their value proposition and communication strategy accordingly.

The first companies to use green commodities will set the standards for their industry and lead change. Producers of low-carbon materials that build relationships with these first movers may be rewarded with price premiums. However, the largest value in partnering with frontrunners lies in gaining experience to move down the cost curve and accelerating the mass-market demand shift.

Monitor the signposts. To stay one step ahead of a developing market, leaders identify signposts that will signal pivotal changes in demand and link actions to each one. Such signposts include impending regulations mandating the use of low-carbon inputs. For example, steel and aluminum producers should keep a close eye on the Scope 3 targets of their customers, including those in the automotive, construction, white goods, and machinery sectors.

Successful producers rapidly adapt commercial strategies when signals point to a shift in demand or supply.

“Industrial companies have just begun the transition to green raw materials, but the shift is likely to accelerate in the next few years. Producers that understand the value proposition for low-carbon commodities and adapt their go-to-market strategies will have an inside track moving rapidly down the experience curve. The winners in this future market will help fuel early demand and enjoy premiums while gaining an advantage as the market for green commodities matures,” concluded Karlsson.

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Editor's Note: For more information or interview requests please contact: Ann Lee, tel: +65 6228 2960, email: ann.lee@bain.com, Bain & Company

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