The slowing growth of the Brazilian economy, Latin America’s largest, also may hurt demand for the metal, Wilson said. Expansion will slow to 1.2% this year from 2.49% in 2013, according to the mean estimate of 37 economists in a Bloomberg survey.
Domestic demand for aluminum used in cans and airplanes is slowing since the World Cup soccer tournament was held in Brazil during June and July. More than 2 billion cans of beer and soda were sold in the country during tournament, according to Atlanta-based Novelis Inc., a fabricator that is the world’s biggest aluminum consumer. While the company’s sales of beverage packaging rose as much as 25% in the second quarter, demand in other areas including transportation was weaker.
So far, prices haven’t encouraged more supply in Brazil, where production in July slumped to 70,400 tons, down 36% from a year earlier, according to ABAL. For the year, the country is poised to produce less than 1 million tons for the first time since 1990, compared with 1.3 million in 2013 and 1.66 million in 2008.
With output dropping, the country has imported 117,425 tons of aluminum in the first half of 2014, an almost ninefold increase from a year earlier, according to data from the country’s Ministry of Development, Industry and Foreign Trade. Imports of aluminum alloys tripled to 60,937 tons, bringing total purchases to 178,362 tons. At the same time, exports of primary aluminum totaled 167,401 during the period, down 29%. ABAL estimates that next year, the domestic industry will become a net importer for the first time since 1982.
Brazil imported 2,301 tons more than it exported in the first five months of the year, compared with a trade surplus of 182,878 tons in the same period a year earlier, according to World Bureau of Metal Statistics data. In May alone, the deficit was 14,517 tons.
As aluminum production declines, mines have almost doubled output since 2005 of bauxite, the ore that is refined into alumina and then aluminum. It takes about four tons of ore to make one ton of refined metal. The country also has expanded output of other minerals including iron ore, and it is the world’s biggest source of sugar, coffee and oranges, the biggest exporter of soybeans and cattle.
Brazil’s aluminum trade deficit forced the government on Aug. 6 to eliminate taxes on imports of up to 300,000 tons in 12 months. The change will help avoid shortages, said Renault Castro, executive director of Brazil’s association of can manufacturers, known as Abralatas.
“It’s quite an unpleasant situation,” said Tadeu Nardocci, head of South American operations at Novelis in Sao Paulo. “There will be a bigger gap between what you consume and what you produce in Brazil.”
Premiums added to LME prices to secure metal climbed to a record $455 a ton in Europe, while in the U.S., it gained 69% in the past year to 20 cents a pound, according to Metal Bulletin data. The Brazilian surcharge is $575 a ton, according to the London-based metals data provider, which started to track the local price in May. Premiums are up as output dropped and metal was tied up in financing deals that extend wait times for deliveries from LME-monitored warehouses.
Those gains may not be sufficient to spur more supply.
“Prices are up, but it’s nowhere nearly high enough in order to maintain production at current levels,” Lloyd O’Carroll, a Richmond, Virginia-based analyst at Northcoast Research Holdings LLP, said by telephone on Aug. 12. “Unless the price increases, we are likely to see additional production shutdowns, and Brazil and Australia are prime candidates.”
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