Industry Overview Primary Aluminum Industry in Venezuela
The producers of Primary Aluminum in South America are Brazil, Argentina, and Venezuela. In the beginnings of the Latin American reducers, Venezuela marked the pattern that Argentina nowadays makes, apart from the Brazilian giant with greater production and different history. In this article we will focus on Venezuela.
The industry of primary aluminum production in Venezuela began with the creation by the government of the Corporación Venezolana de Guayana (CVG) in 1960. This factory protected the creation of all the companies related to Aluminum in that country, starting with the aluminum smelter CVG-Alcasa (capacity 210,000 t)* that started operations in 1967. This was the time when Latin America took a step that was dominated in South America by Brazil since 1940, which with seven factories exceeded the capacity of
In 1970, six aluminum smelters in Brazil founded the Brazilian Aluminum Association (ABAL) during the dictatorship. ABAL achieved the development of the aluminum market with the help of Alcan, Alcominas, CBA (Aluminum Brazilian Company) and Alcoa.
Aluar in Argentina started operations in 1974, (capacity 460,000 t)* that was also born from the hand of the state but under an agreement with Manuel Madanes and José Ver Gelbard.
Venezuela started up the alumina refinery CVG-Interalumina (capacity 2,000,000 t)* in 1977. Power generation was guaranteed by CVG-Edelca in 1978 with the commissioning of the Guri dam with a capacity of 47,000 Gwh. In the same year the aluminum smelter CVG-Venalum (capacity 430,000 t)* and the bauxite mine CVG-Bauxiven (capacity 6,000,000 t) were commissioned.
Brazil was also growing. In 1982, the Valesul aluminum smelter was commissioned in Santa Cruz, which was the country's fourth plant for the production of primary aluminum, and the Maranhão (Alumar) aluminum project was started in São Luís, a consortium for the production of alumina and primary aluminum. At that time, Brazil's total production capacity was more than 1,100,000 t.
In 1983, Aluar began a process of vertical integration to strengthen the company's position outside of primary aluminum production, starting with various derivatives such as rolling and extrusion of the product. In Venezuela, from the beginning of CVG Alcasa's activity, the processes of vertical integration with rolling areas were included.
In 1987, Venezuela put into operation the CVG-Carbonorca pre-baked anode production plant to guarantee the anodes for the aluminum smelter. In 1988 CVG-Venalum expanded the capacity with Potline 5 (Hydro technology), at that time the total production capacity of Venezuela was 640,000 t.
The decade of the 1990's served the emerging Latin American aluminum industry to master the technology and create its knowhouse:
- Venalum engineers designed 5 pots (V-350) experimentally in 1990
- CVG decided in 1994 to merge CVG-Bauxiven and CVG-Interalumina and to create CVG-Bauxilum
- Also in 1994 CVG-Alcasa takes over all the shares of AlunaSa in Costa Rica, later CVG-Venalum
- In 1995, the alumina refinery Alumina do Norte (Alunorte), the largest in the world, is founded in Brazil
- In 1999, after a process of expanding production capacity, Aluar increased its capacity from 273,000 to 460,000 t per year
In Venezuela, everything changed in 1998. CVG-Alcasa, CVG-Bauxilum, CVG-Venalum and CVG-Carbonorca were merged into the company Cavsa, in order to achieve a sale of all of them due to a political-economic crisis.
In the middle of the crisis, a new government in Venezuela in 2000 separated Cavsa in each of its plants. The changes had no effect on Venezuela's total production, which exceeded 550,000 t between 2000 and 2002. In 2003, the directors of CVG planned to build a fifth potline for CVG-Alcasa and a sixth potline for CVG-Venalum, while Pechiney began modernization work on the CVG-Bauxilum alumina plant.
Between 2004 and 2005, while Venalum issued tenders for the construction of the new production line, another change was made - the policy of the factory, which from the beginning had been to export more than 75 % of its production. In 2006, the government, through the Ministry of Basic Industries of Venezuela, issued the guidelines for increasing aluminum sales in the domestic market, while postponing expansion projects. The new marketing strategy increased the storage costs, as the local producers did not have a sufficient infrastructure to preserve the metal. Over time, the aluminum smelters saw that the yards of their warehouses were overcrowded, which led to losses in cash flow.
For 2007, CVG made a tricky decision by implementing a policy of import substitution, but with a government policy with special payment terms for "investments in the local market and the development of small and medium-sized enterprises", according to the government. There were facts that Harvey Beltrán published in his "BNAmericas" articles: Incidents such as the fire that destroyed the blends of the coal crushing and compaction plant of CVG-Alcasa; the warning announced by CVG-Bauxilum about the lack of CaO for its process; and delays in import orders, which in turn was favored by the economic situation behind the payment systems for the aluminum smelter. Only Rafael Primera, CEO of CVG-Venalum, announced that the factory produced 435,000 t.
In Argentina, the first stage of the second expansion of production capacity at the Puerto Madryn plant began in 2007 with the installation of a series (D) of 168 tanks, again using Pechiney technology.
In Venezuela, the first quarter of 2008 was marked by labor disputes. Union leaders at all companies in the aluminum sector demanded higher salary adjustments and benefits, so the government fired all company presidents and replaced them with army generals who redefined the vision of the sector. Believing that the proposal of a new direction did not compensate them, the union began a new strike, in which it intervened until the state's National Assembly. Venezuela's primary aluminum companies were forced to sell aluminum on the domestic market at state-subsidized prices to contribute to the government's plan. In addition to limited foreign trade measures, they made it impossible to invest in the resources necessary to sustain the industry. Finally, the marketing strategies did not guarantee income in dollars, and import substitution could not meet the needs of the factories, which began to suffer from a lack of investment. To mitigate this scenario, the sector's union leaders joined forces and proposed a single union and a single collective agreement to also find a solution to the high level of indebtedness of the companies in labor liabilities.
South America produced 2,600,000 t of primary aluminum in 2008 of which Brazil contributed 1,600,000 t (its all-time high), Venezuela 657,000 t and Argentina 343,000 t. However, as of 2009, high production costs, among other factors, led to the beginning of a cycle of decline in metal production and the closure of some primary aluminum factories in the region.
In early 2009, the Ministry of Basic Industries (Mibam) initiated a plan to reorder and re-launch the country's aluminum companies in order to give added value. The owner of Mibam, Rodolfo Sanz, expressed that technological problems of the companies in the sector were already identified, and started taking corrective measures. However, the official did not provide an agenda for this process, since that date the Alcasa and Venalum expansion projects were no longer mentioned, nor the City of Aluminum project. After years of revision, studies and rethinking of the projects among the authorities did not achieve any progress, despite having everything in favor as indicated in the articles by Dr. Jesus Imery and Dr. Juan Guzman. The global financial crisis created a scenario to justify the operational and financial difficulties. But the unions started a new attack to press a response to their requests, obtaining as response of the state the creation of the aluminum corporation displacing the CVG.
On the other hand, several of local aluminum buying companies covered by the strategy of incentive to the domestic market, were in charge of retaining the metal and then exporting it through the port of Palua. Therefore, the security directorate of the Ministry of Basic Industries and Mining (Mibam) and the Public Prosecutor of Venezuela initiated an investigation of six companies dedicated to the transformation of primary aluminum, the state agency ABN reported "during an inspection to a Panamanian flag vessel, the National Guard detected aluminum ingots and pails in the warehouses of the ship, as well as in the port yard, ready to be shipped presumably to Greece and the US". The cargo had seals of the state companies Venalum and Alcasa, these companies would have sold the metal, violating several regulations and conditions established by the Mibam for the national transformers that serve as customers of the aluminum smelter.
Oscar Bernal Borda, in his publication "Analysis of Preinvestment for the Import and Distribution of Primary and Secondary Aluminum", notes that the buyers in the Venezuelan domestic market do not process aluminum, but sell the primary metal abroad through international traders. While the government prioritized a gigantic social plan with enormous electoral revenues, the aluminum companies considered how to execute payments to suppliers. According to the BNamericas press release published in May 2009, "Aluminum companies must pay suppliers". While the working climate remained on the brink of a new strike, the unions were unable to make payments on the liabilities. In Venalum's particular case, they signed a contract with the Swiss Glencore International for a future sale. "The agreement contemplates the supply of 360,000 t of primary aluminum material and cylinders for six years," said Manuel Díaz, president of the union of professionals of Venalum (Sutrapuval).
The end of the year was marked by the government's plan to reduce the energy supply of the basic industries in the region of Guyana by 560 MW. The Aluminum Corporation named as the reason an "energy crisis" due to the climatic effects that influenced the decrease in the level of the River Caroní, which in turn affects the country's main hydroelectric plants. The plan left 2 production lines closed in Alcasa (Niagara lines) and 360 pots out service in Venalum. In Brasil, Valesul aluminum smelter shut down their potlines in 2009, also due to energy problems. In 2010, Novelis closed its potlines in Aratu- Salvador and Saramenha- Minas Gerais.
In 2010, Venezuela continued to experience a climate of labor conflict, and the electricity crisis persisted. The levels of the Guri reservoir continued to fall, so the government considered a second plan to cut supply, which would lead to the closure of 30 % of the remaining Venalum pots. This decline in primary aluminum production prompted the state holding company to import the metal to ensure supply, as both companies had future sales contracts for about 644,000 t of primary aluminum. Nevertheless, there were no plans to "invest", leaving the word as a justification for the administration to invest in other things. Venalum produced 260,000 t and Alcasa 95,430 t in 2010. South America produced 2,305,000 t this year, part of the production decrease in Brazil (1,536,570 t) and Venezuela (355,430 t) was compensated in Argentina. Aluar produced 413,000 t due to its two new production lines.
In 2011, despite the return of rain and water to the Guri dam, the companies continued to reduce production and electrical failures became more frequent.
In 2012, Venezuelan aluminum companies sought to oxygenate themselves through agreements with companies with Chinese capital. Chalieco, a subsidiary of state-owned Chinalco, initially signed with Alcasa and then with Venalum. In the constant climate of labor protest and pots disincorporations, the chief labor director of aluminum smelter Alcasa, Henry Arias, told the press that "the problem of the companies is that their operation was delivered to workers who have no experience in their management and did not let them be managed by those who do know about the issue" what had been called workers' control.
Alcoa has gradually shut down two crucible lines at the Alumar smelter in Brazil (440,000 tons per year) since 2013 due to the high production costs. Novelis also closed its crucible line in Ouro Petro. Brazilian production fell to 962,000 tons in 2014.
Production from Venezuela, like that of Brazil, reached a low point in 2014. According to the annual report of the Ministry of Industry it was 141,000 t. The only primary smelter in South America was the Argentinean Aluar, which produced 440,000 t this year after narrowly avoiding an interruption of its power supply in early 2013.
Alcoa announced the complete closure of the Alumar smelter in Brazil in 2015 - it was the fifth and largest Brazilian smelter to be closed since 2009. This year alone, only two primary smelters were still in operation in Brazil: Albras (460,000 t per year) and CBA (475,000 t - per year). In Brazil, the shrinking of the sector was largely due to the rising cost of electricity. Hydropower, which seemed so abundant in the 1990s, had proved to be an increasingly scarce resource after years of chronic drought. Given the historically low reservoir levels, Brazil imported electricity from Argentina and Uruguay that year. This was not enough to prevent electricity rationing, as the rainy season did not meet expectations.
Venezuela's two smelters had avoided closure in addition to the "energy crisis". The main reason for the steady decline in production was a combination of years of underinvestment and labor unrest. In 2015 South America produced 1,325,000 tons.
The Aluminum Corporation changed the president of each factory with a frequency of less than two years and the CEO and Senior Management positions changed every 12 months, all military. At Venalum, Major General Euclides Campos was replaced since August 2015 by the army officer Luis Augusto Jiménez, who was replaced in 2017 by the military officer Edgardo Zuleta. They all announced recovery plans and non-existent production records, just to start a pot. They also turned the social networks of companies into a tool for propagating government policies, while the reality of industry was that it was increasing its deficits.
In 2017 Venalum produced 171,000 t and Alcasa, which was about to be technically closed, reached 15,000 t with 36 operating cells. The alumina was imported because Bauxilum presented a technical closure in September 2017, in the bauxite mine most of the mobile equipment was out of order due to lack of spare parts. The political leaders of the ruling party claimed that there had been an economic war against the Venezuelan government.
Brazil's production in 2017 was 801,000 t, a modest 1.05 % increase from 792,700 t in 2016. Aluar produced 421,000 t (1,408,000 t in South America).
Global aluminum production in 2018 grew at the slowest pace for a decade. For the world outside China, it was a year of unusually high failure rates, but for smelters everywhere, price was the real problem.
The South American aluminum market fell by another 15 % in 2018 because the Albras smelter in Brazil was cut by 50 % (of the 450,000 t per year) - influenced by Alunorte's closure that the company had to adjust its red mud problem with state and regional authorities, which together with the sanctions imposed by the U.S. government in its customs policy led to a decline. Brazil's year-round aluminum production for 2018 was 659,000 t.
On the other hand, and influenced by the devaluation of the Argentine peso, Aluar's operating result in 2018 was higher than in previous years. In the second half of 2018, Aluar produced 419,435 t. This contributed to primary aluminum production in South America reaching 1,164,000 t in 2018.
In January 2019, Venalum issued a press release stating that its president, Pedro Tellechea, discussed the Cell Reincorporation Plan and gave the instruction to "increase the number of pots in operation within 90 days". The company did not give an exact number of pots in question or any other details of the plan. But after Venezuela's power supply failed in March, the directors of Aluminum Corporation, along with the presidents of the individual companies, decided to shut down Venalum and Alcasa.
The Economic Commission for Latin America and the Caribbean (ECLAC) estimated that the Venezuelan economy will have shrunk by 15 % in 2018 and 10 % in 2019, positioning Venezuela as the nation with the largest GDP decline in the region. The setbacks suffered by the Venezuelan aluminum industry in 2018 and 2019 were most pronounced in Latin America and the Caribbean. In 2019, South America produced 1,079,000 t.
On January 30, 2020, Tellechea, military president of Venalum, published on his Twitter account the launch of the 1st pot of the V-Line. Over the months, despite the crisis of the COVID-19 pandemic and the low cost of aluminum, Venalum announced on its Twitter account in mid-August that it has 30 operational pots.
In March, according to an online article in the Buenos Aires Times, Aluar announced that it would reduce production in its primary aluminum plant in Puerto Madryn by a further 25 %. The plant now operates at half of its capacity. The company has reportedly cited Argentina's "nationwide shutdown" in response to COVID-19 as the reason, although according to the risk assessment agency FIX, it has given Aluar's ratings negative in the Rating Watch (Alert) due to the greater operational risk resulting from the preventive measures against Covid-19 and the outlook for the global aluminum market.
In the same month, an electrical fire that occurred at Albras (Alumínio Brasileiro SA) of Norsk Hydro caused the closure of one of the plant's four production lines. The company did not announce a timetable for resuming smelting on the line. This, in addition to overproduction and COVID19, will affect Brazilian production this year.
In conversations with the specialists Dr. Wilmer Romero and Dr. Oscar Dam, we reconcile that all companies must adjust to the current trend as the world of aluminum will soon begin to turn. If industry players start to worry about it is a great first step.
Dr. Hans O Bohner1, who was interviewed in July by AlCircle stated: "Venezuela has excess hydroelectric power, a good bauxite and a modern refinery alumina, and could be a serious engine in the primary aluminum market as soon as its political situation can normalize". That is central because they are companies that depend on the state. Technical capacity is not enough if it is not accompanied by a serious and responsible administration.
One of the major disadvantages of the Venezuelan aluminum market was the lack of commercial vision, infrastructure problems, the bolívar's exchange rate risk against the dollar, and political instability - elements that should be considered in Argentina and Brazil.
*Capabilities in the first paragraph are the current ones after the extensions made in the respective companies.
1Dr. Hans O Bohner, Chemical Engineer and Ph.D. in Chemistry, started his career 1948 at Aluminumworks, Rorschach, Switzerland. Then his work in the aluminum sector took him to Canada, Germany, Norway, Iceland, United Kingdom, Russia and China, India and many more countries. He worked with some of the most important names in the aluminum sector such as Alcan, ALUSUISSE, Hindalco, Hydro Aluminum, Vedanta, Chinalco, Giulini, and also offered his experience in aluminum to leading aluminum market research organizations such as Metal Bulletin/CRU and metal traders such as Trafigura, Alaska Metals and Transworld)