There is no sign of an end to the deep crisis affecting the aluminium industry in Brazil, where the output of primary aluminium has fallen by 30% in the past three years, and where per capita consumption of the metal has fallen from about 7kg a year, to just over 6kg in the same timeframe, writes Patrick Knight.

At the request of the government, the industry trade association, ABAL, has prepared a comprehensive study entitled ‘Aluminium in Brazil until 2030’. But with the deep political crisis which has seen the impeachment of one president, and could easily result in the present incumbent, Michel Temer, also being forced to step down, the government has more urgent things to worry about than aluminium. Fortunately, demand for the bauxite and alumina of which Brazil exports large quantities continues strong, so the companies producing this are partly insulated from the problems. But the industry is almost entirely vertically integrated these days, so the weak demand for processed aluminium, consumption of which has fallen from 1.5mt (million tonnes) to 1.2mt a year in the past four years, affects everybody. Worst hit has been the construction industry, responsible for about 20% of all the aluminium consumed; the motor, and consumer durables have also been hit hard. Packaging, responsible for more than a third of what is consumed, has been hit less hard, although demand for canned drinks has slowed.

Now that Vale is no longer active in any part of the production chain, following the sale of its bauxite and alumina interests to Norsk Hydro, the most important Brazilian-owned company in the industry, the Brazilian-owned Brazilian Aluminium Company, CBA, part of the massive Votorantim group, is being very hard hit. For several decades, this company systematically increased production of primary aluminium at its plants in Sao Paulo state each year. At the peak, CBA was producing more than 440,000,000 kilograms, all made from bauxite produced at its mines in neighbouring states, with smelters powered mainly by electricity produced by CBA at the numerous small and medium-sized hydro-electric plants it owns in the vicinity of its mill. CBA also invested heavily in extruded products, mostly catering for Brazil’s buoyant construction industry which takes 15% of the total produced. But following the fall in demand, and the lack of competitiveness of Brazilian aluminium, which has allowed imports to increase, CBA is now making only about 290,000,000 kilograms of primary aluminium a year, 60% of its primarily smelting capacity, while only 30% of its extrusion capacity is being used. In contrast to Alcoa and Norsk, CBA has never been a major exporter of alumina or bauxite. Its output of alumina has fallen from 792,000 kilograms in 2013, to 650,000 tonnes in 2016, while the company’s output of bauxite has fallen from 2.9mt in 2013, to 1.8mt last year. Vale’s bauxite reserves in Minas Gerais state are of lower quality to that used by everybody else, and although Vale has a share in the MRN bauxite deposits in Amazonia, these are far from Sao Paulo.

As some new capacity has come on stream, the amount of alumina produced in Brazil has increased from 9.9mt in 2013, to 10.5mt last year, with exports increasing from 7.1mt in 2013, to 8.3mt last year, while total output of bauxite has increased from 34mt in 2013, to 38mt in 2016. The amount of bauxite exported increased from 8,4mt in 2013, to 9.6mt last year. Output at the MRN mines at Trombetas has risen from 17.3 to 18mt, that of Norsk, has grown from 7.6mt in 2013, to 11mt last year.

It is anticipated that the Brazilian economy will grow by about 0.5% this year, after falling by more than 3% in the past couple of years. Because a huge stock of completed or partly completed apartments and offices remain unsold, output by the construction industry has fallen by more than 20% in the past few years and there is little hope for much of a recovery soon. After sharp falls in the number of new cars and trucks sold, the market for vehicles seems to have stabilized, partly because the weaker currency has made Brazilian models more competitive, so more are being exported. Because of the country’s now chronic political instability, the government has had great difficulty in tackling problems such as pensions and wage levels, which have soared in recent years, while unemployment remains at high levels, so consumer confidence is low.

Brazil’s modern aluminium industry can be traced back to the early 1970s, when the military-led governments which ruled Brazil at that time, and who were adepts of long term planning, drew up an integrated model for the aluminium industry. The foundation stones were the abundant supplies of high quality bauxite, found conveniently close to navigable rivers in the Amazon region, and the fact that several very large rivers have the potential to generate large quantities of hydro-electricity from some of the world’s largest power plants. This period saw the building of the Alunorte alumina plant close to the city of Belem, to be fed by bauxite ferried from the MRN mines on the Trombetas river and of the Albras aluminium smelter near Sao Luis, as well as the Tucurui power plant.

The companies attracted to the schemes, notably Alcoa and Vale, which at that time was still deeply involved in all stages of the aluminium complex, were given long-term guarantees that much of the 4,000MW potential of the Tucurui power station, built in deep jungle on the Tocantins river, would be available to them at a price which would ensure that aluminium made in Brazil would be competitive with that made anywhere in the world. Without cheap electricity, a low-cost aluminium industry is not possible.

This model has been severely questioned in subsequent years, by critics who suggest that the money used to establish aluminium in the Amazon region, where costs are always above average, would have been better spent on measures aimed at reducing the growing disparity between rich and poor in Brazil. Critics claim that the high financial cost of such projects , and other grandiose infrastructure projects in the Amazon region, such as the Transamazonica highway and the North South railway. The revenues earned from the export of bauxite, alumina and primary aluminium, have not been sufficient to repay the high cost of establishing the aluminium complex, most of it borrowed from abroad

But it is easy to criticize with hindsight, and the abundant supply of aluminium in Brazil helped the country establish a modern aircraft industry, now the world’s third largest, the canning industry and the increased use of aluminium fittings in modern buildings.

In the past 15 years, of course, the guarantees of low cost electricity for making primary aluminium have long run out, while the priority of recent left leaning governments has indeed been to attempt to reduce the disparity between rich and poor, not least by cutting the cost of electricity. But Brazil has unfortunately been hit by several years of below average rainfall. Coupled with inadequate investment in new, lower-cost generating capacity, the needs of the aluminium industry have been badly neglected. A substantial amount of smelting capacity has been shut down in recent years, and for the time being at least , there is no sign of anybody wanting to invest in anything new. The political situation is so acute, and public discontent so severe, that it cannot be guaranteed that at the next elections, Brazil may once again elect a left-leaning president, for whom aluminium would not be a priority.