Lower CBA supply driving low-VAT aluminium premium higher in Brazil

Brazilian aluminium supply coming from Companhia Brasileira de Alumínio (CBA) is said to have tightened, helping to boost the P1020A ingot premium, market participants told Fastmarkets in the two weeks to Wednesday April 24

Buyers and traders of ingot with value-added tax (VAT) have reported fewer deliveries of material, although there have been no major changes in demand or supply, according to them. CBA participates in the low-VAT aluminium market in Brazil, selling material primarily at a deferred tax in the state of São Paulo.

Sources questioned whether there is a problem in CBA’s production process or whether it is a commercial strategy for the company.

In the past, CBA has offered less P1020 ingot to make more rolled aluminium products, for example. At that time, a public relations representative said that the company had chosen to feed more aluminium into downstream products such as sheet and foil.

Fastmarkets’ assessment of the aluminium P1020A premium, low-VAT market, delivered São Paulo region was $230-250 per tonne on April 16, narrowing upward from $220-250 per tonne a fortnight earlier, when it widened upward from $220-240 per tonne on March 19.

“Low-VAT ingot premiums are increasing, and I don’t see a reason coming from general macroeconomic demand or supply,” one trader source said. “I heard that CBA might not have enough metal, but this could be a strategic commercial positioning.”

The trader added that this in turn could drive the company’s revenues by pushing prices up.

“We asked for material from CBA, and the company could not deliver it,” a second trader source said.

A buyer also told Fastmarkets that they are not sure if it is a production problem or if CBA is holding material to produce more rolled products such as plate, sheet and extruded profiles.

A third trader highlighted that CBA exports a lot to the US. “They may be holding material to export or because of rising LME prices,” they said.

The company told Fastmarkets on Friday April 19 that there are no problems with ingot production at the moment but did not answer whether it is a strategic move.

CBA chief executive officer Luciano Alves recently said that the Brazilian primary aluminium market was poised to follow bullish sentiment seen in Rotterdam recently. According to him, supply was mostly tight and under control, with inventories remaining at low levels. “If we see demand improving, there is room for rising premiums,” he said.

Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam at $215-225 per tonne on Tuesday, stable since April 15, when it increased by 2.33% from $210-220 per tonne, while market participants were monitoring the new restrictions to trading Russian metal on the LME.

According to CBA’s last earnings report, there was an increase in the production volume, reaching 86,000 tonnes of liquid aluminium production in the fourth quarter of 2023, up by 3,000 tonnes compared with the third quarter.

In the fourth quarter, sales of primary aluminium totaled 77,000 tonnes, an increase of 15% compared with the third quarter (67,000 tonnes) and an increase of 24% compared with the fourth quarter of 2022 (62,000 tonnes). This was the company’s best quarter of the year in terms of sales volume and in comparison with both periods.

Despite some market participants’ pessimism regarding aluminium demand in Brazil at the moment, Alves said that the market “is not bad.”

“We’re seeing good demand from construction, in which we have a large presence, and packaging is mostly stable,” he said. “There are also good demand prospects coming from the energy market due to transmission line projects in the country.”

CBA, which produces low-carbon aluminium, has operations in seven Brazilian states, and a smelting capacity of around 430,000 tonnes per year of primary aluminium. Besides primary products (ingots, slabs, billets and rod), the company also produces semi-fabricated products (caster rolls, sheet, foil, extruded profiles, and parts and components).

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