Future power costs worry iron alloy sector in Brazil

<a href=www.latintrade.com>Latin Trade 04/04/2003 - Source: Business News Americas (BNamericas.com) (BNamericas.com) - Brazilian iron alloy producers fear their cost positions may be squeezed by government policies aimed at attracting investments in the electric power generation sector, an official from the country's iron ore association Abrafe told BNamericas.

"The big concern is how the model for the electric power sector is going to be and that rates remain compatible with those of other countries," said the official, Abrafe VP Marco Antonio Marques Jordao.

The new federal government led by Luiz Inacio Lula da Silva, who took office on January 1, has continued the power policies of the previous administration, but there have been discussions on adapting a new model so as to attract more investment in the sector. One possibility is that prices for metals sector companies reflect the state of the power market rather than the market for the particular metal concerned.

"The iron alloy sector as well as the rest of Brazil's industry is interested in the expansion of power supplies, but it is important that energy costs are on a par with those of other countries," Jordao said.

Electric power is one of the most important inputs for the iron alloy sector, accounting for 10% to over 30% of production costs, depending on the alloy produced, he said.

The Abrafe official said iron alloy producers are not investing in expanding output because it is a mature sector, and investments in current operations still hang in the balance and could be disrupted by high energy costs.

At present, electric energy costs for Brazilian industry hover over US$20/MWh, although this varies widely depending on the region and terms of contract. The price is compatible with most other countries, but some countries like Norway and South Africa provide energy at much cheaper prices.

Jordao said the sector faces a positive market outlook this year. "Demand from steel companies has grown, but there are uncertainties regarding what will be the impact of the war in Iraq and growth in the world economy. The demand from the aluminum and silicon industries is expected to be steady," he said.