Brazil aluminum industry watch

By
Friday, December 29, 2017

Brazilian production of primary aluminum recorded growth in 13 of the last 16 months, recovering from a series of 28 consecutive months of declines.

Production of the metal in Brazil began sliding in March 2014 to recover only in August 2016. Since then, the industry started to show some strength, aided by record output and exports of bauxite and alumina, positively impacting the aluminum chain in the country.

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But on the other hand, increased demand for processed products and the reduction of primary aluminum production capacity saw Brazil becoming an importer of the metal, which compromised the competitiveness of the chain as a whole.

"Without evidence of change in this scenario, the country will remain a net importer of primary aluminum until the conditions of profitability justify the resumption of existing idle capacity," industry association Abal reported in its latest yearbook.

Abal comprises 65 member companies that represent 100% of primary aluminum producers. Also part of the association are aluminum processing companies, consumers of aluminum products, raw material suppliers, service providers and traders.

Currently ranked nine on the list of the world's largest aluminum producers, Brazil has dropped several places in the last few years in the global upstream segment. However, it is still a major player with an integrated chain that includes links such as bauxite mining, primary aluminum production and smelting.

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MAJOR PLAYERS

Abal's largest members include CBA, part of local conglomerate Votorantim, US-based Alcoa and its spin-off Arconic, Australia's BHP and South32, Albras and Novelis, Rio Tinto Alcan, as well as Norway's Norsk Hydro.

RECENT DEVELOPMENTS

During 2017 Brazil's aluminum industry saw Termomecanica, a local leader in the transformation of copper and its alloys, entering the aluminum market.

Termomecanica's commercial and marketing manager Paulo Cezar Martins Pereira told BNamericas in October that production was at 35t/m some six months after starting to manufacture aluminum products.

"Production is expected to grow gradually, reaching 1,000t/y throughout 2018, when the second phase of the project will be underway and new equipment will be operational. Once the second phase has been consolidated, and under normal conditions, output could reach 19,000t/y," Pereira said.

The increase comes after a 27mn-real (US$8.18mn) investment in the manufacturing facilities in São Bernardo do Campo, São Paulo state.

Termomecanica posted gross revenues of 1bn reais in 2016.

In late September, Norsk Hydro issued a notice of force majeure to its bauxite customers because of lower production at its Brazilian supplier MRN.

As the production shortfall was mostly related to dry bauxite for the export market, Hydro said it did not expect output at the Brazilian Alunorte alumina refinery to be affected.

At the time, Hydro's senior VP of media relations Halvor Molland, told BNamericas the company would continue to mitigate the effect of reduced production, which was caused by lack of rain and available processing water.

In July, Novelis started operating an aluminium sheet distribution hub in Brazil's southeastern Espírito Santo state. The hub has an initial 2,000t/m capacity and is expected to reach 8,000t/m by the end of the first 12-month period.

Novelis reportedly choose Espírito Santo because of its strategic location, infrastructure and development programs.

PAST CUTS AND CLOSURES

BHP Billiton decided to curtail capacity by 58,000t at the São Luís (Alumar) smelter starting in 2Q14. The move followed the 45,000t capacity reduction at Alumar in 3Q13.

Alcoa permanently closed its Poços de Caldas aluminum smelter in Brazil in June 2015, after slashing production in May 2014.

Novelis closed its primary aluminum smelter in Bahia state's Aratu industrial complex in late 2010, followed by the closure of its Ouro Preto plant in October 2014.

There is now only two primary smelters left operating in Brazil: Norsk Hydro's 460,000t/y Albras refinery and CBA's 475,000t/y Sorocaba plant.

MARKET OUTLOOK

Domestic demand for processed aluminum products declined in Brazil for the third year in a row, ending 2016 with a consumption of 1.21Mt compared to 1.51Mt in 2013, according to Abal.

Processed aluminum products output dropped to 1.21Mt in 2016 from 1.45Mt in 2013.

"The integrated aluminum chain represents a strategic foundation for social and economic development. In Brazil, aluminum must be viewed from the perspective of a fully structured and competitive production chain, from mining to the final product, and then recycling," Abal said.

In the short term, the association urges the federal government to provide a clear and stable industrial policy for the production of primary aluminum. According to Abal, idle aluminum capacity in the country will only be resumed if the industry recovers its competitiveness, dynamism and investment capacity.

Whether in the upstream or downstream segments, the main levers of industrial policies for the aluminum industry should include full energy supply, labor laws, larger investments and a smaller tax burden, according to the association.

Brazil's aluminum chain. SOURCE: Abal