Brazil rations power

Energy shortages continue to play a key role in the international mining industry. Last Friday, the Brazilian Government introduced power rationing over most of the country, including its industrial heartland. The crisis has been caused by the country's 90% dependence on hydroelectric power, and a drought that has reduced the water levels in dams. The threat of rationing was raised early last month (MJ, May 11, p.352).

The government hopes that the measures will reduce electricity demand by an average of 20%, and will thus enable the country to avoid black-outs. The consequences include a predicted reduction in economic growth: economists had been variously forecasting growth of just over 4% this year, and are now adjusting their figures to less than 3%.

The measures, lasting for at least six months, require large industrial consumers of power to reduce their use by 15-25%, depending on factors such as the number of people that they employ; and smaller industrial and domestic consumers must cut back by 20%. The most seriously affected parts of the mining and metals sector is the (energy-intensive) aluminium industry, which is facing the maximum 25% cut. Steel plants are to be cut in the range 20-25%, and the motor-car industry, which is more labour intensive, is to meet the minimum 15% level. Metals production is thus likely to be cut deeper than demand.

This Tuesday, the rationing was extended to the north and the extreme south of Brazil, which have been less badly affected by the droughts. The north is to meet the 20% reduction target imposed on the rest of the country, but from July 15, and the south must reduce its consumption of power by 7%.

Brazil's largest mining company, Companhia Vale do Rio Doce (CVRD), said that 91% of its core business, iron ore mining, pelletising and transportation, does not fall under the category of large electricity consumers (but presumably faces the 20% cut). According to Reuters news agency, CVRD is protecting its iron-ore business by renting 40 electricity generators, each rated at 1.7 MW, at a total cost of around US$40 million. The company's electricity-intensive ferroalloys business does face the deepest rationing, and CVRD expects to lose the equivalent of around US$26 million in this sector in the next six months. The company will also reduce its aluminium production.

A recent study on behalf of the Brazilian aluminium industry calculated that a 25% cut in electricity consumption would reduce output by 152,400 t/y, some 12% of the production total last year. The position of individual producers is more complex. Alcan Aluminio do Brasil, the local subsidiary of Alcan Inc. of Canada, has two smelters, in the states of Minas Gerais and Bahia, producing a total of 106,000 t/y. However, the company generates 10% of its own electricity, and thus, according to its president, Joao Beltran, will need to cut production by 23%. Meanwhile, Alcoa Inc. of the US has confirmed that it has cut production at its 90,000 t/y Pocos de Caldas smelter by 25%.

Analysts have also raised the prospect of deeper cuts, as the government seeks to divert power from the north of the country, where more than half the aluminium smelting capacity is located, to the northeast region. This could raise the amount of capacity taken off line to around 400,000 t/y. This fear appears to be well-founded, given the extension of the rationing to the north this Tuesday. There is also the possibility that smelters may make additional, voluntary production cuts to sell power to the grid at a profit. This power could come from their remaining power allowances, where it is under fixed-price contract, or from own-generated power. Under this scenario, the aluminium production cuts could amount to as much as half the national total of 1.3 Mt/y.

The zinc sector has also been hit. The largest producer, Companhia Mineira de Metais, part of the Votorantim group, has a capacity of 115,000 t/y which it is in the process of expanding to 160,000 t/y. The company has indicated that it will import metal to meet its contractual arrangements with customers. The second-largest zinc producer, Paraibuna de Metais, part of the Paranapanema group, has cut production at its 93,000 t/y capacity facilities by 13%. The company generates 75% of its power from its own hydroelectric plant, and buys the balance from the Minas Gerais State distributor. Paraibuna has agreed to take a 25% cut on this external supply. However, the company would not confirm its position with regard to the possible sale of own-generated power into the grid.

http://www1e.btwebworld.com/mining-journal/MJ/08jun2001.htm

-- Martin Thompson (mthom1927@aol.com), June 09, 2001