Aluar Set to Be top South America Aluminum Maker

Dec. 3 (Bloomberg) -- Aluar Aluminio Argentino SAIC, Argentina’s biggest aluminum producer, plans to boost output by a quarter within two years to 520,000 tons, becoming the single largest smelter in Latin America as Brazilian demand surges. The company, which now smelts 410,000 tons of the metal a year at its Puerto Madryn plant in Argentina’s remote Chubut province, will increase output to 460,000 tons next year before output climbs to 520,000 tons in 2011, Chief Executive Officer Javier Madanes said in a Dec. 1 interview in Buenos Aires. Larger competitors including New York-based Alcoa Inc. and Rio Tinto Group cut production and scaled back investment plans during the worst recession since the Great Depression. Aluar is bucking the trend as economic growth accelerates in Brazil, fueling demand for aluminum in power lines and transportation. “We didn’t stop producing a single ton during the international crisis,” said Madanes, 57, whose family started the business in 1974 and remains the majority shareholder. “The prices of metals are improving, not too fast, but improving.” Aluar’s expansion plans will take the company past Latin America’s largest smelters in Brazil. Cia. Brasileira de Aluminio, known as CBA, currently produces 475,000 tons and has put on hold its own expansion plans. The Albras smelter in north Brazil, a joint venture between Vale SA and Nippon Amazon Aluminium Co., can produce about 460,000 tons a year. Future Supplies Concern over future electrical energy supplies and prices is causing some producers in Brazil to put expansion plans on hold, according to the country’s Aluminum Association. Power accounts for about a third of the cost of producing aluminum, prompting companies such as Rio Tinto and Alcoa to scour the world in search of inexpensive and abundant supplies. Power will not be a problem for Aluar, Madanes said, since the company is the majority owner of Hidroelectrica Futaleufu, a dam and hydroelectric terminal located on the river Futaleufu in Chubut which has a capacity of about 1,220 megawatts, or 6 percent of Argentina’s total installed capacity. “We consume around 720 megawatts and sell about 200 megawatts to the electric system,” of Argentina, he said. The power required by an aluminum plant of the size of Aluar’s is equivalent to the electrical energy needs of a town with more than 1.5 million people, according to the company. The plant in Puerto Madryn is located 1,400 kilometers (870 miles) from Buenos Aires and had initial capacity of 140,000 tons. Brazil Destination Brazil will be the main destination for Aluar’s additional output. The company exports 70 percent of total production, with 12 to 14 percent going to Brazil, according to Madanes. Aluar posted a profit of 76 million pesos ($19.9 million) for the quarter ended Sept. 30, compared with 98 million in the year-earlier period. Sales fell to 952 million pesos from 1.01 billion a year earlier. Aluminum fell $8.25, or 0.4 percent, to $2,148.75 a ton at 1:33 p.m. on the London Metal Exchange. The metal has climbed 26 percent in the past year. Aluar is listed in the Merval, the benchmark index of the Buenos Aires stock exchange. The “recovering” demand for aluminum and existing cash generation will help fund the expansion, Madanes said. Aluminum demand has been “gradually and slowly” rising since the end of the third quarter, Svein Richard Brandtzaeg, chief executive officer of Norsk Hydro ASA, Europe’s third- largest aluminum producer said yesterday. “There’s a positive sentiment, but we’re cautious because the situation is fragile; we don’t know what may happen in the next six months,” he said. Aluar also has enough cash to finance investments after paring borrowing, Madanes said. “Our short-term debt is now almost down to zero and the debt we do have is very long term,” he said. “So now, keeping up to date with our investment program depends of having a cash flow of 200 million to 250 million pesos a year and we are going to end the year with a decent balance.” To contact the reporter on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net