BMI View: R efined metal production and consumption in Brazil will see accelerating growth in the years ahead on the back of expansion in Brazil's automotive, construction, and infrastructure sectors. However, the coming quarters will remain challenging owing to weak economic growth marked by subdued private consumption and fixed-asset investment.
Stronger Sector Performance In Latter Half Of Decade
We expect metals consumption and production to face headwinds in the coming quarters on account of modest economic growth ( see ' Slow Growth Here To Stay ,' September 9). We forecast real GDP growth of just 0.7% in 2014 and 1.5% in 2015 on the back of sluggish private consumption, subdued fixed asset investment, and a weak business environment. Moreover, electricity costs remain elevated, raising costs for the energy-intensive metals industry. Nevertheless, our multi-year outlook towards Brazilian economic growth is more constructive, as we forecast solid growth in the automotive, construction, and infrastructure sectors. We therefore expect metals demand, and hence production, to accelerate in the latter half of the decade.
| Stronger Industry Prospects Beyond 2015 |
|Brazil - Real GDP & Fixed Capital Formation (% chg y-o-y)|
The majority of Brazilian metals production will be consumed within the country, providing an opportunity for companies to increase revenues and profits in the domestic market in the years ahead as economic growth improves. We expect domestic aluminium and copper demand to exceed production, in contrast to steel, which will see production levels exceed consumption.
While firms will be able to take advantage of stronger economic fundamentals on one hand, they will also face constraints from Brazil's complex tax and regulatory environment on the other. The latter will add to production costs and put pressure on margins. Lower import duties on certain metal products, after higher rates in previous years, will also weigh on domestic producers....