(Minews) - Aluminum maker Alcoa Inc said on Monday it will shut its only remaining smelter in Brazil, the latest victim of a toxic mix of weak metal prices and high energy costs.
Despite tight regional supplies, the plant, with capacity to produce 74,000 tonnes of aluminum per year, is the third to close in Brazil in the past year. That leaves two operating in the country, down from six in 2010.
The closure will cut Brazil's annual production to under 900,000 tonnes even as consumption is expected to grow as South America's largest economy prepares to host the 2016 Olympics.
Last year, Brazil produced 962,000 tonnes of aluminum, the lowest since 1990 and down a quarter from 2013, and well short of its needs for fabricated products, according to data from Brazil's Aluminum Association (ABAL).
High recycling rates will help cushion some of the production losses, driven by soaring energy costs as a severe drought has raised hydropower prices.
"You have a situation in which the massive energy costs mean that primary aluminum is basically untenable," said Nic Brown, head of commodities research at Natixis in London.
Dwindling output could increase Brazil's reliance on imports as its large packaging sector grows, potentially diverting supplies from exporters in Asia and the Middle East away from the North American market.
Brazil imported 306,400 tonnes of primary aluminum and alloys between January and September 2014, up from 78,100 tonnes during the same period in 2013, according to the most recent ABAL data.
Any tightening of supplies could boost premiums that are paid for physical delivery of metal on top of the benchmark London Metal Exchange price.
Weak futures prices have prompted Alcoa and other aluminum companies to shut smelting capacity and refocus on higher-margin, value-added products to meet burgeoning demand from the automotive industry.
Monday's news comes weeks after Alcoa said it would review 500,000 tonnes of annual capacity and 2.8 million tonnes of alumina refining capacity as it ramps up its massive low-cost smelter in Saudi Arabia.
The first drop in premiums in five years this year put more pressure on producers and likely accelerated Alcoa's decision, said Nicholas Snowdon, metals analyst at Standard Chartered in London.
Norsk Hydro's 460,000-tonne-a-year Barcarena plant, and CBA's 475,000-tonne-a-year Sorocaba smelter are Brazil's only remaining smelters.
