A Tale of Two Metals
Source: MetalMiner, Stuart Burns (10/6/10)
"Or more accurately, a tale of two metals and one country."
What does this have to do with metals? In addition to Brazil's growing economy, steel demand has been strong. Surely the same dynamics must apply to other metals, right? Wrong, aluminum production has remained stagnant this year. YOY production edged up 1.4% in May but was down in the first five months of 2010. While smelters are clearly struggling, demand is rising. Associação Brasileira do Alumíni (Brazilian Aluminum Association) fears the country could become a net importer by 2014 if investments in new capacity are not made.
Brazil's problem is power costs. With imports rising, lower-cost suppliers are setting the market price for aluminum domestically and Brazil's smelters are can't compete. Smelters are calling for reduced power costs and taxation to spur investment but with a rising population placing every larger demand on the countries hydroelectric resources the government may be reluctant to subsidize aluminum production at the expense of domestic supply.
It would seem Brazil has an old world problem in a new world setting.