Brazil Aluminum Output Declining As Low-Cost Imports Surge

Brazil's aluminum output is declining as producers can't compete with growing low-cost imports from countries such as China, and the country could soon become a net importer, said Adjarma Azevedo, president of the Brazilian Aluminum Association, or Abal.

Brazilian primary aluminum production fell to 1.53 million metric tons in 2010, from 1.63 million metric tons in 2008, as two smelters shut due to high energy costs, Azevedo said in an interview with Dow Jones Newswires this week.

Cheaper imports are taking up more of local demand growth, which could top 9% this year, after rising 27% in 2010 after markets recovered from the global crisis, the Abal president said.

Imports of aluminum products, including scrap, climbed to 241,300 tons in 2010, from 161,600 tons in 2009. Brazil's aluminum exports meanwhile fell to 733,000 tons in 2010 from 921,000 tons in 2009, having slumped from 1.066 million tons in 2007 as more metal's been sold domestically to meet growing demand, Abal said.

Imports look set to double to meet demand as local energy prices, taxes, logistics difficulties and the strong real have all boosted operating costs for Brazilian producers of the light metal.

High energy costs have often been cited by Vale as a reason for cutting its exposure to aluminum production in Brazil. This week Vale completed the sale of its remaining aluminum smelter and alumina refinery installations to Norsk Hydro ASA （NHY）, which will also acquire the bulk of Vale's Brazilian bauxite operations on a staggered basis.

For Norsk Hydro, which is a major aluminum, aluminum products and electric power producer, the acquisition ensures the firm has sufficient raw material to supply its international smelter operations, according to Azevedo.

Alumina is a semi-processed form of bauxite used as a raw material in aluminum production.

Energy and tax costs are equivalent to 51% of the price of aluminum sold in Brazil, according to Abal.

Imports will also double if Brazil doesn't spend 20 billion reais （$12.05 billion） on expanding both aluminum smelting and processing facilities over the next 10 years to meet new demand, Azevedo said.

Novelis is investing $300 million in boosting its aluminum rolling facilities in Brazil, while various companies are installing new extrusion presses, he said.