Brazil’s worst-ever drought severely crippling its aluminium industry

Brazil, which was once the sixth largest aluminium producer in the world has now slipped two spots down to the eighth position primarily due to their severe bout of drought which has made electricity a scarce commodity.

While the world primary aluminium production has increased by 3% from 2012 to 2013 with new capacities springing up across the globe, the Brazil aluminium production is at its lowest in 12 years.

Brazil, which is generally a water-rich nation, has been handicapped by the worst dry spells it has experienced in modern history. As a result, hydroelectric power generation has been severely affected leaving the nation literally in the dark. This has caused energy charges to go up and even though the government had reduced the prices by 7.8% for the producers last year, it still remains a major concern for the industry.

Many companies had invested in the aluminium industry in Brazil over the past 20 years due to high quality bauxite availability as well as the expectation of cheap energy promised by the abundance of water and hydroelectric dam projects. However, its recent drought conditions have forced many mining and metals majors to pull out their investments from the country.

Brazil-based Alcoa has already idled 147,000 mt of capacity in the Pocos de Caldas plant in Minas Gerais and 97,000 mt capacity in Sao Luis based smelter. That means a total of 244,000 mt capacity has been idled by Alcoa alone.

In the first half of 2014, Brazil had imported 117,425 mt of aluminium while exports went down by 29% amounting to 167,401 mt compared to the export values of the first half of 2013. In 2015, Brazil is going to be a net importer of aluminium for the first time in 33 years, since 1982.