São Paulo – Although Brazil has the third largest bauxite reserves in the world, with above-average quality, the resumption of investments in local projects is only expected to come with a recovery in prices. “As long as China keeps loss-making mines in operation, prices will remain depressed, which prevents a consistent resumption of bauxite projects,” says Marcelo Xavier, mining director at Pöyry do Brasil.
According to the chairman of the board of the Brazilian Aluminum Association (Abal), Alberto Fabrini, companies in the sector have been investing in productivity and process improvements in the mines. “However, without major investments in new projects,” said the director in a recent interview with DCI. According to Fabrini, the industry’s biggest challenge today is to remain competitive, especially in relation to China. For Xavier, the lack of prospects for the recovery of bauxite prices, as well as consumption in China, prevents major investments in Brazil. “The global scenario will be a determining factor for companies to be able to invest in the country again,” he adds. Alcoa recently doubled its bauxite production capacity in Juruti (PA), through what the company calls “eliminating some bottlenecks.”
According to the aluminum giant, there were no significant investments for this increase and, currently, the mine's installed capacity is 4,8 million tons. Production, however, is around 2,6 million tons. At the end of last year, Vale had already announced its intention to sell its 40% stake in Mineração Rio do Norte (MRN) – a bauxite producer – to Norsk Hydro. However, the negotiation was terminated because “the two companies were unable to agree on commercial terms,” the Brazilian mining company announced when it withdrew last month.
Meanwhile, companies in Brazil and around the world are waiting for the market to stabilize, especially in China, where loss-making mines are resisting the current situation. “Some plants are able to operate at high costs, but many have already closed,” estimates Fabrini. However, according to aluminum trader Rodney de Oliveira, price recovery will only come with control of installed capacity worldwide. “With demand flat [stable] and costs rising in some parts of the world, global capacity will have to be reduced, which does not seem to be happening,” he ponders. Refineries In addition to mining, Brazil also has large projects in the alumina area. The intermediate product between bauxite and primary aluminum is priced ten times higher than the ore. “We have good projects in this segment,” points out Fabrini.
One of them is the Alumar refinery (Consórcio de Alumínio do Maranhão), the result of a merger between Alcoa, Rio Tinto Alcan and BHP Billiton. However, Alumar's last major expansion was in 2009, according to Alcoa. The possibility of a new investment to increase capacity was even raised in the market last year, but did not materialize. Another great promise is the Rondon project (PA), by Companhia Brasileira do Alumínio (CBA), owned by Votorantim. However, given the adverse scenario, the company is now seeking partners to manage production.
The estimated investment by CBA for the exploration of the alumina and bauxite reserves is approximately R$6,6 billion. “The company encountered a series of logistical difficulties in carrying out the project and now needs a partner,” says Xavier. He emphasizes that Brazil has a much greater chance of emerging in the first two levels of the production chain and also in recycling. “This is a very promising market in the country, where important companies such as Novelis and Recicla BR operate.” The director of Pöyry adds that the high recycling rate, especially of beverage cans, contributes to the success of the business locally. Xavier points out, however, that it is difficult to predict when the aluminum market will recover.
According to him, this is unlikely to happen in the next two years. “I see recovery first where there is more value, such as at the end of the chain, and also in mining.” However, the same is not true in the primary aluminum business. China has been investing heavily in the construction of highly competitive plants. “With the current price, these new smelters can still post profits,” explains Oliveira. In Brazil, however, this link in the production chain is likely to remain under pressure for an indefinite period of time. “I don’t see a recovery on the horizon,” says Xavier.
DCI – 21/06/2016
