In the latest of the pieces that Metal Bulletin has commissioned to ponder the future, Franklin Feder, Alcoa's regional ceo for Latin America and the Caribbean, urges Brazil to assist its aluminium industry, especially by cutting its power costs.
When it comes to the necessary attributes for hosting a thriving and profitable aluminium industry, Brazil has it all.
The country has some of the world’s largest reserves of high-quality bauxite; a large-scale hydro-based energy-generating system; a 200-million-strong population in which aluminium per-capita consumption is still a fifth of the level in OECD-member countries; and, last but not least, a talented, entrepreneurial and productive workforce.
Compare these four attributes to the situation in two other major aluminium producing countries: China, the world’s largest producer and consumer, has dwindling bauxite reserves and high-cost and dirty coal-fired energy; Russia has competitive hydro-based energy, but lacks good-quality reserves of bauxite.
Yet in recent times, despite all Brazil’s strengths, three aluminium smelters have been shut down in the country – one each in the states of Rio de Janeiro, Bahia and Minas Gerais. Statistics published by the Brazilian aluminum association, Abal, show production has been declining.
What’s going on?
Let’s first establish what it’s not about. There is no written or unwritten policy directive aimed at stamping out the Brazilian aluminium industry. On the contrary, the current administration as well as the previous one – which combined account for the past ten years of Brazil’s history – have supported the country’s energy-intensive industries, with the objective of adding value to exportable mineral commodities, such as iron ore and bauxite.
Moreover, the government believes aluminium is vital for socially oriented income distribution programmes, such as “Light for All”, and “My Home, My Life”, as well as for the upcoming World Cup football tournament and the Olympic Games in Rio de Janeiro.
Finally, it is clear to most of those involved that without a robust upstream aluminium business, the entire Brazilian aluminium mid-stream and downstream value chain will become brittle and eventually disappear.
However, Brazil’s aluminium industry – as is the case with other assorted businesses – has been the indirect victim of the absence of a clear national industrial policy, aggravated by insufficient investment in infrastructure and the tax burdens imposed to sustain a massive public sector. The country’s exchange rate policy has also hit the industry.
Take the cost of electricity. Over the years, without assessing the consequences on a regular basis, Brazil’s federal government has increased taxes and surcharges that, combined with an overvalued Brazilian Real, have made Brazil’s electricity prices among the highest in the world.
Brazil’s current administration came in with a dual industrial policy objective of reducing prices and increasing competitiveness. In early 2013, Congress approved and President Dilma Rousseff signed Law 12.783, which drastically restructured the entire electrical energy sector. Not unexpectedly, the move did lower residential energy bills, but did little for energy-intensive industries, such as aluminium smelting.
Only now is the government stating that this aspect of the legislation will be improved shortly.
The industry can only hope that this and other helpful measures promised by the Brazilian government are delivered swiftly, and in a way that stimulates investment and profitable growth.
A well-known Brazilian businessman used to say, “Everything in Brazil always ends up at the right place, except getting there is more exciting than in other countries.”
Let’s hope that this saying applies to the country’s aluminium industry.
Franklin Feder is Alcoa's regional ceo for Latin America and the Caribbean.
As part of its centenary celebrations, Metal Bulletin has asked leading participants from different parts of the metal and mining industry to take part in MB Next 100, a series of pieces on how the future might unfold.