We don’t really need any more examples of the economically destructive nature of authoritarian socialist regimes.
History is littered with examples of how not to manage an economy, but the tragedy that is Venezuela, being as it is both a near neighbor and a significant aluminum producer is all the more painful to see up close. Reuters, this week, ran a short piece on an announcement by Venalum, the country’s one-time aluminum champion and Latin America’s largest, that they could no longer guarantee the purity of their primary aluminum to international standards.
Quality Not Guaranteed
Venalum wrote to warn clients on Wednesday that the iron content of its ingots will exceed established industry limits of 0.3%, rising to between 0.55 and 0.9%, forcing it to cut prices and making the metal harder for industry buyers to use, according to Reuters. This is the latest in a steady decay at the once-admired company and will only add to the woes of its Japanese minority owners Showa Denko, Kobe Steel Ltd., Marubeni Corp., Sumitomo Chemical Co. Ltd., Mitsubishi Materials and Mitsubishi Aluminum, who between them own 20%, but certainly wish they didn’t.
Venalum once exported 75% of its production to the US, Europe and Japan, but with costs rising they have gradually withdrawn from the market. One ton of aluminum is estimated to cost Venalum $4,000 per metric ton to produce, double the industry average, as the technology has become outdated and capacity utilization has collapsed. The company has a theoretical installed capacity of 430,000 tons, but is estimated to have only produced 100,000 last year, dogged by, among other problems, labor unrest and price capping by the state.
If Venalum is no longer able to control the iron content, one wonders to what extent other controls are failing, particularly air fluoride levels, the emission of greenhouse gasses like Perfluorinated Chemicals and a variety of metallic and carbon-rich particulate emissions.
Not Just Oil Related
It is too simple to suggest Venalum and Venezuela’s woes are down to a falling oil price that is depressing national revenues. Venezuela has been in steady decline for a decade, with previously high oil prices masking the depth of decay caused by years of Hugo Chavez’s disastrous policies.
[download-button url=”https://agmetalminer.com/monthly-report-price-index-trends-march-2015″] Free Download: Price Trends in the March MMI Report[/download-button]