Brazilian Power Prices Affecting Aluminum Production, Too
MetalMiner | Nov 10, 2014 02:34AM ET
From a short term prospective (2-3 yrs.), it is anticipated that the Brazilian electricity sector won’t be able to implement diversification and the volatility in electricity prices will continue to prevail. Although from a long term prospective (5-10 yrs.) the prices will become more competitive with advent of fuel diversification in the coming years there-by giving industries an upper hand during energy/electricity procurement.
Curtailment of aluminum smelting facilities in Brazil
Brazil is struggling against time to avoid power blackouts and electricity rationing as a drought prevents the water-rich nation from recharging its hydroelectric-powered dams. Brazil was once the world’s sixth-largest producer, a major player with an integrated chain from bauxite mining to primary aluminum production.
However, now, Brazil is the eighth major aluminum producer, preceded by China, Russia, Canada, the USA, Australia, United Arab Emirates and India. World primary aluminum production increased by about 3% in 2013 compared with production in 2012. New capacity in China accounted for most of the increased production. The major primary aluminum producers in Brazil are Albras – a joint-venture between Norwegian Norsk Hydro and Japanese consortium Nippon Amazon Aluminum, Alumar – a partnership between multinational resource group BHP Billiton, Pittsburgh-based aluminum giant Alcoa Inc (NYSE:AA), and Rio Tinto‘s Alcan subsidiary, Novelis do Brasil Ltda., Votorantim Metais, and Alcoa Alumínio. In recent times, the production of Brazilian aluminum companies is at the lowest level in 12 years amid high power costs and metal price declines. Though the electricity prices for the producers were reduced by 7.8% for the previous year, still the power cost remains as the industry’s main hindrance.
h2 Aluminum Production in Thousands of Metric Tons/h2
Get The News You Want
Over the last 20 years Brazil attracted many global aluminum producers due to good-quality, accessible bauxite reserves with expectations of ample cheap energy supplies because of hydroelectric dam projects. Today, the nation finds itself in the middle of the worst dry spells in its modern history. In recent times many metals and mining majors have stopped expanding their aluminum capacities in Brazil and some companies are expected to trim their exposure plans to the region. Aluminum smelters are electricity consumers wherein power consumption accounts for about half of the cost of refined metal production.
The rising electricity costs and challenging global market conditions made the Brazil-based aluminum producers such as Alcoa to shutter 147,000 metric tons of capacity in its high cost plant i.e. Pocos de Caldas in Minas Gerais and 97,000 metric tons of capacity in its Sao Luis based smelter which won the company BHP Billiton Ltd. as its shareholder.
Hence, there are idle smelting facilities with capacity of about 244000 metric tons for the year 2014. With a slump in aluminum production, Brazil imported 117,425 metric tons of aluminum in the first half of 2014. The exports of primary aluminum went down by 29%, 167,401 metric tons compared to the exports during the first half of 2013. In 2015, Brazil’s domestic industry is estimated to become a net importer of aluminum for the first time since 1982. At the global level, aluminum markets are expected to face huge supply deficits in 2014 and 2015. The supply deficits are expected to be in the range of 1 million tons and 1-1.5 million ton in 2015. The price of aluminum is expected to rise by 4.1% for the year 2014 year-on-year and by 4.7% for the 2015 year-on-year.
A note about the contributor: Beroe is the premier global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight.
by Suriya Anjumohan
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.