ALUMINUM OUTPUT IN BRAZIL EXPECTED TO RISE IN 1992

ALUMINUM OUTPUT IN BRAZIL EXPECTED TO RISE IN 1992

Brazil's aluminum industry will likely increase production in 1992 despite depressed world prices and high domestic energy costs, industry sources said.

"Output will rise. . .as more plant expansion comes on stream," said Wilian Okai, marketing director of the Brazilian Aluminum Association."However, this year should mark the end of such expansion, with virtually no new investments planned at the present time," Mr. Okai said.

Brazilian 1991 aluminum production totaled 1.140 million metric tons, up 22.5 percent from 930,600 a year ago. Mr. Okai said a preliminary analysis by the association indicated 1992 output will rise roughly 4 percent to about 1.190 million tons. Exports were the main force behind 1991 Brazilian aluminum sales, industry executives said.

Total 1991 exports were 875,700 tons, up 37 percent from 639,400 in 1990, according to the Brazilian Aluminum Association.

"Aluminum is a highly capital-intensive industry and you can't just turn off your plants when domestic demand falls," Mr. Okai said. "Thus, when domestic demand was weak during much of 1991, the Brazilian aluminum industry turned to exports, even though world prices were low."

Although the association has offered a preliminary forecast of 1992 Brazilian aluminum production, no one in the industry currently is prepared to predict domestic consumption levels. "But one thing is virtually certain: if domestic demand is weak again in 1992, then companies will once again turn to the export market," an industry executive said.

Brazil's economy is currently in the middle of a severe recession, with Brazil's President Fernando Collor de Mello hoping federal spending cuts, higher taxes and sky-high interest rates will bring down towering inflation, which was recorded at 475.1 percent for 1991.

Aluminum executives said interest rates, currently running at about 26 percent a month, likely will keep the construction industry in recession for months to come. With a poor construction market, domestic aluminum sales likely will remain flat, giving rein to continued exports again in 1992.

World prices, however, continue below Brazilian aluminum- industry costs. Costs currently are running about $1,450 a ton, against a 3-month average London Metal Exchange price of about $1,150, Mr. Okai said.

LME prices began 1991 at about $1,550 a ton, but the U.S. recession, which

sent world demand down, coupled with heavy selling by the former Soviet Union throughout the year drove prices to their 1991 year-end level of about $1,150 , executives said.

They estimated former-Soviet Union sales in 1991 at 700,000 to 900,000 tons, against what one executive called "normal" former-Soviet sales of 150,000 to 300,000 tons a year. Sales from that part of the world "cannot go on. . .like that forever, no matter what their foreign exchange needs may be," an executive said. "But the problem is no one knows for sure what kind of stocks they (the now-Commonwealth of Independent States) have left."

Mr. Okai said current Brazilian industry expectations call for a tapering of Commonwealth sales and a U.S. economic recovery around mid-year. He said Brazilian aluminum exporters are hopeful that LME prices will rise to about $1,350 a ton at mid-year and $1,500 by the end of the year. Controlling domestic costs, however, is another problem.

"Brazilian electric power costs are more than double what competitors in the U.S. and Canada pay," Mr. Okai said. He put the current electric power rate paid by aluminum producers three times as much as in the United States and Canada.

Electric power corresponds to about 30 percent of current Brazilian aluminum industry production costs, Okai said. In a capital-intensive industry dominated by major companies including Alcoa and Brazil's state-controlled minerals giant CVRD S.A., Brazilian aluminum producers will be able to survive continued low prices and high costs through 1992, industry executives said, but the memory of bad times will make it unlikely for such companies to initiate substantial new investments for many years.