Dec 5 (Reuters) - The European Union should drop a looming carbon border tax that risks pushing its aluminium sector into long-term decline by inflating costs and benefiting more polluting overseas suppliers, the CEO of aluminium products maker Constellium said on Friday.

The EU's Carbon Border Adjustment Mechanism, which will impose a levy on imports of a handful of commodities starting in January, is intended to shield European producers against cheaper rivals in countries with looser climate laws.

But industry representatives see it as deeply flawed and hope the EU's final adjustments to the mechanism, due to be released this month, will address their concerns.

"The first thing to do about CBAM is just to eradicate it, get rid of it," said Jean-Marc Germain, the chief executive officer of Paris-based Constellium, one of the world's largest suppliers of aluminium products for aviation, car making and packaging.

"The core of the issue is the competitiveness of Europe. We are shooting ourselves in the foot knowingly," he told Reuters.

Euro zone manufacturing activity slipped into contraction territory in November.

Constellium mostly buys European aluminium, which is not subject to a CBAM charge, for processing at its factories in the region. But the upcoming tax - coupled with concerns over supply from smelters in Iceland and Mozambique - has nonetheless pushed up European premiums for physical metal to a 10-month high.

The premium will rise to the cost of the last ton of aluminium needed to satisfy demand, meaning all metal will become more expensive regardless of its origin, Germain said, warning that the cost inflation would be "death by a thousand cuts" for Constellium's industrial customers in Europe.

Loopholes in the scheme mean overseas suppliers could avoid CBAM by shipping in scrap, or could send low-carbon aluminium to Europe and keep producing high-carbon metal for other regions. "It doesn't do anything for the planet," Germain said.

CBAM's impact will not be immediate but could eventually see companies invest elsewhere and shut European capacity, he said. "It's not one of those things where all of a sudden you turn the lights off. It's going to be a gradual decline."