Cheap Chinese aluminium has led to lean times for Brazil’s aluminium industry as it earns more for selling surplus electricity

Brazil’s aluminium smelters now make more money from selling surplus electricity, than the metal, as prospects for industry remain subdued, writes Patrick Knight.

This was the conclusion of governments in the 1970s and 80s, when long-term planning was in fashion. Along with short fibre pulp, steel, and more recently meats, notably beef and poultry, Brazil’s National Development Bank loaned large sums to the aluminium industry. Work was started, notably in the Amazon, in opening new mines, and building plants to process bauxite into the intermediate product, alumina, as well as new smelters, both in the Amazon, as well as closer to domestic users in the south east of the country.

To facilitate the establishment of the new smelting capacity and to ensure investments were made in the Amazon region, the country’s second-largest hydroelectric power station, the 4,000 megawats Tucurui plant, was built on the river of that name. Half of its power was available at an accessible price, allowing the Vale mining company, known at the time as Vale do Rio Doce, and a producer of aluminium in Rio de Janeiro, to build the 6.4mt (million tonnes)-capacity ‘Alunorte’ alumina plant, at the time the world’s largest.

The ‘Albras’ smelter, owned jointly by Vale and the Nippon Aluminium Company, was built alongside. As in most countries, the fast-growing motor industry was the leading customer for products produced from primary aluminium, in the industries early days produced by Vale, as well as Alcoa and Alcan, which had smelters in Minas Gerais, and Bahia states. Most of the bauxite came from the jointly owned MRN Trombetas mine on the Tocantins river, although Brazilian Aluminium Company, the CBA — part of the giant Votorantim group — obtained its ore from lower quality mines in Minas Gerais state. This was processed at CBA’s integrated plant at Alumina, a town in Sao Paulo state.

In contrast to all the other companies,

CBA generated all the electricity it needed, from its own hydroelectric plants. The leading markets for aluminium were the motor, construction and packaging industries, dominated by the ubiquitous aluminium can, used both for beer and soft drinks, for which demand is almost insatiable in tropical Brazil.

Long-term contracts for the supply of electricity, whose cost forms half of the cost of making primary aluminium, ensured that Brazilian aluminium was competitive with from almost all aluminium making countries. The use of aluminium increased by an average of about 5% a year, although even at its peak in about 2000, the per capita consumption of the metal in Brazil only reached 7.5kg. The export of the relatively low value bauxite increased steadily, to peak at about 12mt in 2017, although the 9mt of alumina exported last year earned much more.

Exports of both products earned about $2.5 billion in 2017. In contrast to the situation of market pulp and iron ore, demand for which has grown steadily in recent years, and which has aided Brazil running large trade surpluses in recent years, successive governments have refused to continue making low-cost electricity available to the aluminium smelting companies.

China, of course, now produces 30mt of primary aluminium a year, which compares with Brazil’s 1.3mt. Cheap aluminium from China has helped push the world price of the metal to below what it costs to make in most countries. As a result, Alcan and Alcoa have either shut down their smelters in Brazil, or cut capacity, while Vale has shut down smelters, or sold them, as well as its interests in the alumina and bauxite mines and processing plants, to Norsk Hydro, which has become the leading player in the aluminium industry in Brazil.

The CBA, which in early years, exported a third of the 470,000 tonnes the company made at the peak, has now virtually ceased exporting. The company has concentrated on adding value to the products, notably extrusions, sold to the motor and construction companies.

Ironically, rather than complaining about the high cost of electricity, the aluminium smelters now make most of their profits from selling their surplus electricity, to electricity

distributors. In the past few years a combination of increased demand, with a series of very dry winters has reduced generating capacity, pushing electricity prices to record highs. In this situation, any hope for a return to subsidies for aluminium smelters is hopeless, even though the import of primary aluminium now cost more exports of bauxite and alumina earn.

The last smelter to be built in Brazil was a quarter of a century ago. Novalis is investing in new facilities for can making, but that is about it. As with all mining industry, bauxite producers are vulnerable to accidents, and the Alunorte alumina plant has been operating at 50% of its 6.4mt capacity after a reservoir storing waste burst its banks. This echoes an identical problem which affected the facilties at MRN’s Trombetas mine 40 years ago, although the damage there has now been completely rectified, following the planting of the affected area with resistant species.

On the positive side, demand for motor vehicles has been growing in the past couple of years after a spectacular falls in 2015 and 2016, mainly because the weak Brazilian currency, the real, has allowed record numbers of cars to be exported, most to neighbours.

It is still not clear what effect the advent of cars being fitted with electric engines will have on the use of aluminium. In recent years, emphasis on reducing the weight of vehicles, has encouraged the use of more aluminium in bodywork, but electric engines may contain less aluminium than the latest generation of Otto cycle engines do. After three years when house building came to a virtual standstill, house building is showing signs of a revival, although the increased costs of most beverages, notably beer, means demand from the packaging industry, remains subdued.