chronic shortage of power,
selling their electricity to the
grid or end users, rather than
using it themselves, has
proved more attractive.
While the price of
electricity remains so high in
Brazil, something which
seems likely to continue for
many years, the aluminium
companies seem unlikely to
re-start their idle smelting
capacity, let alone add any
Two successive years of severe drought in Brazil’s south east and also north east regions, have brought the country to within an ace of
being forced to introduce electricity rationing, which was forced a decade ago. The dry weather has forced de facto water rationing in many towns and cities, prejudicing much
of industry. The dry conditions are continuing, and some worry
that they have been at least in part caused by the de-forestry
activities in the Amazon region, so could persist for many years,
of not for ever.
The past few years have seen demand increase by an average
of about 5% a year, with per capita consumption increasing from
less than 5kg a decade ago, to 7.5kg last year. This is still far
below the average in more developed countries.
Several years of prosperity, and easier access to credit has
seen the number of motor vehicles made rise by more than
50%, to exceed three millions a year. The motor industry one of
whose executive is now the executive director of Abal, the
aluminium industry’s trade association, uses about a quarter of
all the 1.5mt of aluminium used in Brazil each year. The
construction industry, the second-most-important user along
with packaging, has also grown steadily, as an increase in credit,
coupled with rising incomes of a large proportion of Brazil’s 200
million population, spurred increases in home building.
Aluminium is now used to make a third of all window and door
frames, as well as numerous other fittings previously made from
wood or steel.
Although the world economic slowdown has fed through
into a slow down in all these industries in Brazil, demand for
aluminium is expected to continue to grow to the point where
Brazil will be obliged to import up to 3mt of primary aluminium
a year, in a few years’ time.
Industry leaders says the smelting industry is at a cross roads.
It will soon be too late to re-start the idle smelting capacity.
But while the government continues to turn its back on the
primary smelting industry, demand for both bauxite and alumina
from Brazil, continues to grow strongly .The result is that
coupled with increased revenues from the sale of electricity,
strong earnings from the sale of bauxite and alumina means the
financial state of all companies in the industry remains extremely
strong. Although the leading producer Votorantim, in common
with Alcoa, is cutting output of aluminium,Votorantim is to build
a large new alumina manufacturing plant in the Amazon region,
which when complete will add 3mt to Brazil’s current 11mt
alumina-making capacity. Alumina made by Votorantim in the
Amazon will cost less to produce, and should also be cheaper to
transport to Votorantim’s mills in Sao Paulo, than that from the
now elderly, and relatively high-cost mines in Minas Gerais state.
Bauxite from Minas travels to Votorantim’s mills by rail, with a
train carrying the mineral passing through the congested centre
of Sao Paulo city every afternoon. Alcoa continues to invest at
its multi billion dollar Juruti bauxite mine on the main Amazon
The export of bauxite and alumina together now earn Brazil
a hefty $2.5 billion dollars or so each year. But with imports of
primary aluminium now rising steadily, the cost of imports will
soon exceed industry export earnings by a growing amount.
This will present governments with a dilemma, and perhaps force
officials to re-think the countries policy for primary aluminium.
After running a healthy trade surplus for 15 years, the trade
balance has moved into the red, and the growing import of
aluminium, is one of the reasons.
A further complicating factor in the equation for aluminium,
has been the fluctuations of the Brazilian currency against
stronger currencies such as the US dollar in which the price of
aluminium as well as bauxite and alumina, are set.
Brazil’s currency was overvalued for many years. With
interest rates set high to attract foreign investors, the country
became a haven for ‘hot’ money. The strong currency resulted in
imports, including of primary aluminium, cheaper than they
would otherwise have been. But the strong real also made
Brazil’s exports, including those of bauxite and alumina, more
expensive than those from competitors.
This situation has now changed, so imported goods have
become more expensive, while Brazil’s exports have become
Because it could not be denied that insufficient primary
aluminium was now being made in Brazil to meet demand, which
meant that what was available was sold for very high prices, the
users of aluminium, notably in the motor and construction
industries, persuaded the government to scrap a 6% import duty
on aluminium last year.
But the soaring costs of imports may encourage the
government to look again at what the long term future of
primary aluminium in Brazil should be.