Brazil’s aluminum sector largely unfazed by tariff cut

Brazil’s aluminum industry will be largely untouched by a government electricity tariff reduction measure announced in January despite the sector’s demand for large quantities of energy compared with other fields.

In January 2013, the Brazilian government announced reductions of up to 32 percent in electricity tariffs for industrial, agricultural and retail customers.

It also announced plans to double the country’s installed capacity over the next 15 years from the current 121,000 megawatts, as well as investments in transmission lines.

At the time, Brazil’s energy rate for the industry stood at about 329 reais ($164) per megawatt hour vs. 142 reais per MWh in China, according to a study released by the Industrial Federation of Rio de Janeiro (Firjan).

But many aluminum smelters acquire energy through contracts settled in the free market, which aren’t directly affected by the new regulations.

"We believe that the aluminum industry will feel the impact of the electricity tariff reduction indirectly, mainly through reductions in transmission costs. Energy costs may fall about 12 percent for the industry," Brazilian aluminum association president Adjarma Azevedo told AMM sister publication Metal Bulletin.

This scenario still isn’t enough to make it attractive for companies to increase their aluminum production capacity. Companies in the country are instead concentrating on increasing exports of alumina—Brazil possesses the biggest alumina plant in the world, owned by Norsk Hydro ASA—and bauxite, production of which is set to increase by 23 percent to 38 million tonnes per year from 2011 to 2016, Brazilian mining institute Ibram said.

"One of Mercosur’s original plans was to promote energy integration among its members ... but that is still a dream," Azevedo added.