Forging resilience: How Brazil's aluminum sector is looking to outshine Chinese competition

Companies operating in Brazil's aluminum industry are currently undertaking a cycle of investments involving around 30bn reais (US$5.4bn) as competition grows from Chinese products.

The planned investments, set to be completed by the end of 2025, are being made to boost reserves, expand bauxite mines and hike capacity, as well as to implement new technologies, restructure energy supply and water reuse, and increase recycling.

Janaina Donas, president of Brazilian aluminum association ABAL, speaks with BNamericas about how the companies in the sector are addressing persistent pressure from Chinese products and how the industry can gain advantages as demands rise for greater sustainability.

BNamericas: How concerned is the aluminum industry about the increase in imports of Chinese products?

Donas: Our concern about unfair competition isn't limited to a specific country. There's no discrimination against China. Rather, we're questioning China’s role in the global aluminum market, similar to concerns raised in other sectors.

China's share of imports increased from 11% to 56% over 20 years. This significant rise stemmed from excess production initially intended to meet domestic demand, which later became a product for export.

BNamericas: What have been the impacts of this competition on the local industry?

Donas: When there's excess production globally, metals prices drop. This has happened in Brazil in recent years, coinciding with an increase in production costs, particularly in terms of energy.

These impacts occurred years ago and are cyclical events that reoccur from time to time.

BNamericas: How has the sector sought to defend itself?

Donas: When we experienced these effects in the past, first in exports and then in local production of primary aluminum, we warned the government that this would impact the entire chain, especially in semi-manufactured and processed products where there is greater added value.

At ABAL, we've been working on mechanisms to strengthen defense of trade, initiating investigations that led to anti-dumping measures. We successfully implemented a compensatory measure against China last year, marking the third case of its kind globally, with only two others previously initiated by the United States.

It's important to note that while China is a concern, there are other concerns as well, such as trade diversion.

Moreover, in recent years, we conducted studies to understand the taxation of our sector in the country. We found that the tax burden on national products is around 35%, compared with 15-22% on products from other countries.

So, in addition to advocating for changes in the current tax reform, which will only have practical effects in 10 years' time, we need a short-term response to ensure equality.

BNamericas: How do sustainability issues impact the sector?

Donas: The emergence of new trade barriers related to sustainability can be both a concern and an opportunity for us.

The concern lies in the fact that we're part of this vulnerable scenario, as we lack mechanisms that prevent trade diversion, making us more susceptible to unfair competition.

BNamericas: Given the current scenario, is there a risk of companies reducing their investments?

Donas: We're not talking about cutting investments in the sector. In fact, it’s quite the opposite.

Ten years ago, the aluminum sector was undergoing deindustrialization, similar to what we're seeing in the steel sector. However, we've managed to reverse this trend.

What is being required globally in terms of emissions, sustainability and traceability in production chains is work we've been doing for years.

Today, we have a vertically integrated aluminum industry that's poised for a resurgence in investments and increased capacity.

Of course, the shadow of unfair competition is always present, but I see opportunities for market gains given the increased emphasis on sustainability.

Initially, the industry's investments are aimed at meeting demand in the domestic market, but due to sustainability issues, we have the potential to re-enter the global market.

That’s why it’s crucial that we address the lack of equality here in Brazil so we don’t miss these opportunities.

BNamericas: What can the aluminum sector teach other sectors facing challenges due to competition from Chinese products?

Donas: One advantage we have is the vertical integration of our industry, which allows us to control the entire value chain.

This is a unique situation in Brazil because few countries can manage the production of the ore [bauxite], the refinery, the production of the primary material and the processing industry.

If there's any weakness in a link in this chain, it jeopardizes the entire process. Brazil’s vertical integration is a significant advantage, especially at a time when the world is seeking reliable commercial partnerships.

Furthermore, when we look at the companies in our sector, we see firms at an advanced stage of energy self-generation and circular economy initiatives – something other countries may struggle to achieve.

We have all of this: raw materials, a vertically integrated chain and self-sufficiency in energy. This is why we're investing heavily in the opportunity to re-enter the global market.

BNamericas: What efforts are being made to increase the uses of aluminum?

Donas: We've been collaborating with universities on research and development, and supporting government programs like Mover, which promote the use of aluminum in the automotive industry.

The transport, construction and energy sectors are key areas of aluminum consumption.

BNamericas: Some regions of Brazil are experiencing low levels of rainfall, affecting electricity production, with the government asking large consumers to reduce their consumption. Is this impacting the aluminum sector?

Donas: We've been following the recent news about this, but we haven't yet received any official information. What's important is to have policies in place to reduce voluntary energy demand, allowing companies to better manage their energy supply schedules.

This interview was originally published on August 12