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Aluminum supply tightening as production slumps in Brazil

Producing aluminum in Brazil got so expensive as electricity prices surged to records this year that Alcoa Inc idled its Pocos de Caldas smelter and now sells the facility’s power instead of metal.

The worst drought in decades drained reservoirs used to run hydroelectric generators that supply power to extract aluminum, boosting costs already inflated by more spending on labor and transportation. Cities may be forced to ration water, and last week the government cut taxes on imported aluminum to help ease shortages as demand grows for beverage cans.

While the country has the world’s third-largest ore reserves, it is importing more refined metal than it ships after output in July fell to the lowest on records going back to 1996. Aluminum prices this week reached the highest in 17 months as Brazil adds to output cuts that Goldman Sachs Group Inc said will mean global deficits through at least 2017.

Mr Milton Rego executive president of the Sao Paulo based Brazilian Aluminum Association said that “It’s not economical anymore. Its the chronicle of a death foretold.”

Aluminum smelters are electricity guzzlers, with power accounting for as much as half the cost of producing refined metal. Hydro electric generators that supply about 70% of Brazil’s electricity were limited during the drought, sending spot power prices on January 31, the peak of the Southern Hemisphere summer, to the maximum allowed by the government, or BRR 822 per megawatt hour.

Source – Bloomberg


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