Despite the challenges of a robust real and rising energy costs, Albras, a major Brazilian producer and exporter of aluminum, aspires to become a leading global supplier of this hot commodity. President Luis Nunes explained to Michael Sommers how a combination of cost cutting, automation, increased product purity, and inspired management will help the 25-year-old company meet its goals.
When, in 1985, Alumínio Brasileiro S.A. (Albras) inaugurated its operations as a producer of aluminum ingots, it was a historic event on many levels. Albras was not only the first aluminum producer to install itself in the bauxite rich Amazonian state of Pará, but it was also the first industry ever to set up shop in the region surrounding the town of Barcarena, located some 75 miles from Pará’s capital of Belém. Although today the region constitutes one of the most important industrial zones in Brazil – within the larger vicinity lies the Tucuruí Dam, the fourth largest hydroelectric dam in the world – at the time of Albras’ conception, aside from some small-scale agriculture, most of this area was covered by native rainforest.
AN UNPRECEDENTED JOINT-VENTURE
Development of the Amazon and the creation of jobs and income for local populations was a major impetus for the establishment of Albras as was the construction of the Tucuruí Dam. Initiated in 1975, this massive undertaking was completed in 1984, just in time to provide a cheap and abundant source of renewable energy for the brand new aluminum plant. However, the original catalyst for the company dates back to the late-‘70s and the aftermath of the energy crisis.
“In 1978, the Japanese and Brazilian governments decided to create a joint venture for the production of aluminum,” recalls Albras’ president, Luis Nunes. “Brazil was looking to explore its large reserves of high-quality bauxite – at that point, it was actually importing aluminum from abroad – and Japan was looking for an aluminum supplier. Japan was an importer of energy and once the energy crisis kicked it, importing enough to produce its own metals was out of the question. The original plan was to build a plant for smelting and refining, but when the company began production in 1985, the price of aluminum was so low that we didn’t begin refining until later.”
Albras began life as a joint-venture between the Nippon Amazon Aluminum Company (NAAC), a consortium of Japanese trading companies, aluminum producers, consumers and the Japan Bank of International Cooperation, and Brazil’s government-owned Vale, currently the second-largest mining company in the world. However, since early this year, NAAC, with 49 percent of the company’s stocks, now shares control of Albras with Norway’s state-operated Norsk Hydro company, which controls the remaining 51 percent.
Initially, production levels were quite modest. Albras began with two production lines that, between them, had the capacity to churn out 180,000 tons of aluminum. By the early ‘90s, the company had added another two lines to its facilities – which today total 3.9 million square feet – and had doubled its capacity to 360,000 tons. Renovations, upgrades, and a small expansion increased output to 406,000 tons by the late ‘90s. Meanwhile, over the last decade ongoing investments in technology and processes coupled with new strategies have increased levels to a current high of 460,000 tons.
To date, the company’s success has certainly had an impact both on the state of Pará and Brazil. The company has contributed annual revenues of around R$600 million (roughly US$370 million) to Pará’s economy. And accumulatively, in its 25 years of activity, it’s generated more than R$20 billion (US$12.4 billion) to the Brazilian economy through the sale of over 8 million tons of aluminum ingots. However, despite its impressive legacy, the company is not prepared to rest on its laurels.
MEETING NEW CHALLENGES
“Over the last few years, our main focus has been to increase productivity by improving upon the structures we already have in place; essentially modernizing our processes while diminishing our costs,” confesses Nunes. “For instance, by adopting new technologies, between 2003 and 2007, we were able to increase the amperage of our lines from 150 kA to 180 kA, which in turn helped us drive up production at no extra cost. And last year, we began a five-year program to upgrade all four of our lines by 2015. The goal is to produce a lot more while using the same amount of energy.”
Complete automation of the production process is one of the biggest trends driving the industry today and Albras realizes that the company has its work cut out for it if it’s to compete with the ambitious new players emerging on the global scene. “Whereas we produce around 1,300 kg/pot. day, today’s top new aluminum plants are able to produce about 3,000 plu kg/pot. day,” explains Nunes. “The more automated the plant, the greater amount of aluminum they can process. For this reason, we’re really dedicated to improving our processes.”
Aside from changing how it makes aluminum, the company is also seeking ways to make aluminum that is actually better than that it already produces. “Since aluminum is a commodity, price is regulated by supply and demand,” points out Nunes. “However, one factor that does make a difference is the purity of the metal. Right now, we produce metal that’s within the same range of that produced by our main competitors – around 99.85 percent. In order to gain a competitive edge, our goal is to soon be producing aluminum that’s 99.9 percent pure.”
The focus on improving quality and increasing capacity, while reducing costs, is not just good business strategy, it’s also a necessity in a day and age when Brazil – and Albras – finds itself at a competitive disadvantage when it comes to exports. “Around 90 percent of what we produce is exported,” reveals Nunes. “Although we supply liquid aluminum to regional industries that make electric cables, the rest is shipped overseas; around 50 percent to Japan and the rest to Europe. The strengthening of the Brazilian real has really made it difficult for us, especially since our costs are in reais and we sell our product in dollars.”
Another major challenge for Albras has been rising energy costs. Nunes points out that all the newest aluminum plants that Albras is competing with are located in regions where energy is cheap and abundant, namely the Middle East, with its vast oil reserves, and Russia, whose hydro-electric potential is enormous and still largely untapped. Meanwhile, due in part to the fact that costs are in reais, when it comes to producing aluminum, Brazil now boasts some of the highest energy costs in the world, a situation that is a major stumbling block for an industry in which 40 percent of costs are spent on energy generation.
A CLEAR VISION
Despite such obstacles, Albras has a “very clear vision” of how to achieve its goal of becoming one of the globe’s leading suppliers of aluminum. Says Nunes: “We have a strong management system in place and we’re constantly evaluating our strengths and weaknesses and making changes so that we can become a world leader.”
While a major company priority is to make a profit for its shareholders, Albras is equally committed to fostering excellent relationships with its clients and suppliers. Another main priority is the company’s relationship with its workers and the communities and region in which it operates.
“People are the foundation of our company and we have implemented many programs to get our employees involved as well as to identify and nourish talent both on-site and in the community,” says Nunes, noting that 96 percent of Albras’ 1,300 directly employed workers hail from surrounding towns and villages. In addition to programs that encourage employees to provide feedback and develop their own community volunteer projects, Albras provides multiple benefits to workers and their families ranging from access to education and medical services to the installation of an on-site gym.
“We’re very proud of the fact that in the last 11 years, we’ve been voted as one of the Top 150 Companies for which to work in Brazil,” declares Nunes. “Moreover, last year we broke a record in terms of worker safety that placed us at the top of our industry with less than one human accident for every 1 million hours worked.”
While the welfare of its workers and the community at large is paramount to Albras – it has earned both OHSAS (health and safety in the workplace) and SA 8000 (social responsibility) certification – so too is preserving the environment, especially viewed the company’s location amidst the world’s most famous, and threatened, rainforest. From the outset, sustainability was always a major concern for the company. In the 1980s, together with Alunorte, Albras acquired a 3.5 hectare piece of native forest surrounding Barcarena and transformed it into a conservation reserve. The company also maintains a 30 hectare patch of forest where regional species are reforested and ecological and educational activities are offered to local school children.
Aside from boasting ISO 14001 certification, Albras is also the only aluminum producer in Brazil (and the second in the world) to have its Carbon Credit program recognized by the U.N. More recently, between 2008 and 2010, the company invested heavily in the treatment of its gas effluents. As a result, it succeeded in lowering its atmospheric emissions to levels well below the accepted standard. Concurrently, through the creation of a Center for Waste Materials, it can also proudly point to the fact that 100 percent of all of the residues generated by its plant are recycled. Nunes. “In the last year, we’ve really become a ‘green’ smelter,” says Nunes. “I don’t know of anyone in the industry that’s been able to achieve this.” If Albras continues on the path it’s chosen, there will surely be many more achievements to come.