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Brazil's aluminum premiums get Midwest lift

Keywords: Tags  aluminum, Brazil premium, Midwest premium, London Metal Exchange, LME, Carolina Guerra


SÃO PAULO — Average spot P1020 aluminum premiums in Brazil are at $600 per tonne, with market participants attributing the rise to higher U.S. Midwest premiums.

Local premiums, which were at a minimum of $500 per tonne in mid-January, are being driven by increased demand and falling domestic production. Historically, Brazilian premiums have followed movement in Midwest premiums.

AMM’s spot P1020 premium was at 20.75 to 21 cents per pound Jan. 30, up on the low end from 20.5 to 21 cents per pound Jan. 22 (amm.com, Jan. 30). Premiums were at 11.5 to 12 cents at the beginning of January.

"It is simple math. Producers add the Midwest (premium) to how much it would cost to import. Their advantage is that they can deliver within a minimum of seven days, whereas imported material can take up to two months to arrive in Brazil," one market participant told AMM sister publication Metal Bulletin.

"This model was created decades ago and has never changed," the director of an aluminum company said.

Low London Metal Exchange aluminum prices and infrastructure issues in the South American country also contribute to increased costs.

For instance, the cost of bringing material from Brazil’s northeastern regions, where Consórcio de Alumínio do Maranhão (Alumar) smelter is located, to São Paulo, could reach 13,000 reais ($5,363) per truck, carrying 27 tonnes per travel, according to an estimate by Neuto Reis, executive technical director of Brazilian national association of cargo transportation NTC.

"That is equivalent to an additional $200 per tonne only in transport," another source added.

Local producers also complain of the impact of high electric energy tariffs on competitiveness.

"The fragile link in the chain is electricity," Otávio Carvalheira, primary aluminum group coordinator for Brazil aluminum association Abal, said.

Brazil's federal government announced power tariff reductions of up to 32 percent for industrial, agricultural and retail customers in the beginning of 2013.

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

Marcelo Massarente, base materials specialist at Boston-based consultancy Bain & Co., has forecast three possible scenarios for the Brazilian aluminum market this year.

The first scenario shows Brazilian primary producers responsible for imports to the country.

"The companies would try to calm the domestic market a little and not let new players in," Massarente explains.

In the second scenario, aluminum consumers would explore their options, including exporting or negotiating locally.

The third possibility would be a stronger performance from traditional traders, which would increase volumes brought to the country. "In this one there would be no permanent importer. Traders would look for the best offers," the executive said.

A mix of all options isn’t being ruled out either. "I see a bit of everything happening at the moment. Primary producers are looking for imports, traders are setting deals and consumers are considering all their options," an aluminum buyer added.

A version of this article was first published in AMM sister publication Metal Bulletin.


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