GM banks on Chinese vehicle family to boost Brazil sales

General Motors Co (GM.N) is planning for long-term profitability in South America built on the back of draconian cost cutting during Brazil’s recession and the same low-cost vehicles it is developing for Chinese consumers, which are due to hit dealerships in 2019.

“We have been refreshing the vehicle family (in South America), building up market share and getting the cost point right, all in preparation for one vehicle family,” GM President Dan Ammann told Reuters in a recent interview.

That “one family” will consist of an expected 2 million units made annually for South America and China that will lower production costs.

“That is an unprecedented level of scale,” Ammann said.

GM is doubling down in South America, where it is already the top-selling automaker, thanks largely to two Chevrolet models, the subcompact Onix and the Prisma sedan. It expects better margins from rising sales and new lower-cost production models, including SUVs and crossovers increasingly favored by consumers.

The automaker’s plan, which GM has not previously disclosed, is part of an overarching strategy focused on profitability instead of trying to compete in every market.

The U.S. automaker has pulled out of unprofitable operations in Europe and countries such as India.

But GM is still betting on Brazil, a country just starting to come out of its deepest recession in decades. Carlos Zarlenga, head of the automaker’s operations in Brazil and Argentina, recalls that during the downturn executives scrutinized every purchase request over $10,000.

GM cut its Brazilian labor force 35 percent, persuaded unions to agree to multiyear contracts with wages pegged to inflation, reworked its supply chain and ditched a slick Sao Paulo building for offices at a nearly 90-year-old auto plant.

“The whole purpose was to make sure we maximized every inch of expenditure,” Zarlenga told Reuters in a recent interview.

Ammann says the cost reductions lowered GM’s breakeven point in Brazil by 40 percent.

After hitting a record of 3.80 million units in 2012, auto sales in Brazil – the world’s eighth largest market, accounting for a majority of South American sales – plunged 46 percent to 2.05 million in 2016.

The economy began to gradually rebound in 2017, lifting auto sales by 9 percent. GM’s South American operations posted a profit of $100 million in 2017, the first since 2013.

“South America can become a meaningful contributor” to GM’s overall profits, Ammann said.

GM also passed Fiat Chrysler Automobiles NV (FCHA.MI) last year to become Brazil’s top-selling automaker for the first time since 2004, according to data from industry group Anfavea.

Brazil auto sales rose 16 percent in the first quarter from a year earlier, Anfavea reported. GM’s Zarlenga said at an event in Sao Paulo this week that Brazil auto industry sales will hit 2.7 million units in 2018, 2.9 million in 2019 and 4 million by 2027.

Rival Toyota Motor Corp (7203.T) has also invested in new plants in Brazil and is working to become more competitive in South America.

In January, U.S. automaker Ford Motor Co (F.N) hinted at possible significant changes for its money-losing South American business.

“DIFFERENT FOUNDATION”

Last year, GM halted car sales in India – where it had less than 1 percent market share – and pulled out of parts of Africa to focus on profitable operations.

In 2017 it sold Opel, its struggling European arm, to France’s Peugeot SA (PEUP.PA).

In an April 20 client note, Morgan Stanley analyst Adam Jonas said GM could “follow a similar path” in South America.

“The precedent of GM exiting a region with little or no chance to generate positive returns for shareholders has been set,” Jonas wrote.

But exiting other markets has freed up capital for GM. In August, it said it plans to invest $1.4 billion at three plants in Brazil.

GM was in a better starting position in South America than in markets like India, said Ammann.

“That’s a foundation that’s different than some of the other markets in the world where we’ve decided we don’t see a path to long-term success,” Ammann said.

He said South American consumers tend to like similar vehicles to their counterparts in China, where the automaker is developing a new family of cheaper vehicles with SAIC Motor Corp Ltd (600104.SS).

Some of those vehicles will join GM’s South American lineup in 2019.

“We can get a level of scale that we couldn’t in Europe,” said Ammann.

Lower production costs mean GM can add features – safety, infotainment and connectivity – normally standard in more expensive models, he added.

Guido Vildozo, IHS Markit’s senior manager for the Americas, cautioned that South American drivers have decades more driving experience than Chinese consumers and higher expectations.

“There is always a risk when you develop a vehicle for China where driving dynamics are not such a high priority and sell it in a market where they are priority,” Vildozo said. “A lot will depend on how these vehicles evolve.”

Source: Reuters

Higher industrial activity sends Brazil’s ferrous scrap prices to new record high

Brazilian ferrous scrap prices have notched a new record high, as generation has not yet been able to keep pace with increasing demand from industrial activity, which is rising after recent years of hardship due to domestic economic and political woes.

S&P Global Platts assessed the weekly clean steel scrap price at Real 935/mt ($271/mt) Monday, up 3.9% from the previous week and a jump of 75.4% since January 1. In the first quarter, prices rose 45.5%.

Monday’s assessment was the highest since Platts started monitoring the product in 2010.

Market participants expect a persistent rise in prices at least for the next six months, by which time they expect scrap generation should find some stability, while the presidential elections in October may bring another round of uncertainty to the industrial sector.

Meanwhile, companies not willing to pay the higher prices have been seeking alternatives, such as increasing the production mix for pig iron, or even importing the material.

“This is a short-lived strategy,” said a scrap dealer, citing the maximum use of 30% of pig iron (versus 70% of scrap) in the steelmaking process.

A 30,000 mt scrap cargo was reportedly booked by local steelmakers last month and is set to arrive soon at one of the Southeastern ports in Brazil.

“Steelmakers are paying the same value or even higher for these imported scrap just to avoid local purchases, fearing prices would strengthen further,” said a dealer.

A year ago, clean steel scrap was being sold in Brazil at Real 430/mt, or 117%, below the current price — a level that had held almost unchanged since 2015.

Market sources say tight supply is the main driver of scrap prices nowadays, but Brazilian scrap association Inesfa said that “there is no shortage of ferrous scrap in the country.”

The group expects ferrous scrap generation to reach 7.6 million mt in 2018, up 4.1% from the previous year, while demand is expected at 5.5 million mt and inventories are calculated to top 22.4 million mt.

“For decades [scrap] generation and inventories have exceeded demand,” Inesfa added.

A consumer source disagreed, saying that it was quite difficult to receive large volumes of scrap in February and March. “I do think supply has been tight,” he added, noting that deliveries have been easier since early April.

The same source explained that delivery times have been prolonged since the beginning of the year, and payment terms were revisited in order to secure desirable material.

“We started offering payment at sight instead of 7-10 days after delivery, just to make sure our orders would be fulfilled.” A scrap dealer agreed and said dynamics have changed. “I’m giving preference to those companies paying at sight,” he said, adding that scrap collection has been slower than expected.

Nevertheless, some steelmakers were said to be paying in advance, “targeting to freeze prices more than securing material,” a source at one mill said.

Although steelmakers still represent roughly 90% of Brazilian ferrous scrap demand, scrap dealers have begun to turn their attention to foundries or to the export market in order to guarantee higher prices.

“It has been easier negotiating with a customer 1,000 km away of my yard than selling to a steelmaker 20 km away,” said a dealer.

Inesfa said the rise in prices has been linked solely to increasing demand. “This phenomenon has been occurring with other products due to the slight resumption of the [Brazilian] economy and [industrial] production,” it said.

Indeed, the automotive sector — currently the main engine of the domestic steel and recycling industry — has reversed the downtrend of past years, bringing some optimism to the production chain.

Vehicle production in Brazil rose 25.2% in 2017, according to national carmakers association Anfavea. In total, 2.69 million cars, trucks and buses were made during the year, against 2.15 million vehicles in 2016, halting three years of output declines.

In Q1 2018, both production and sales of vehicles in Brazil rose about 15% from Q1 2017, reinforcing 2018 growth projections of 13.2% and 11.7%, respectively, according to Anfavea.

“Not yet sunshine and roses for Brazil in 2018,” said a scrap dealer, however, who expected the price boom to be short-lived. He added that while the scrap sector is the first to feel the economic recovery, it also is the first to show a decline.

“And the panorama for Brazil is not bright,” he said, referencing the looming presidential elections. “Whatever happens in October, it won’t bring prosperity, not at least in the next two years. We are facing a phase of adjustments, and this requires losses and pain.”

Source: S&P Global

Arab, Brazilian leaders call for enhanced ties

Top leaders underscored the importance of strengthening the cooperation and economic relations between Arab countries and Brazil at various levels at the recently held Arab-Brazilian Economic Forum in Sao Paulo, Brazil.

The event, themed ‘Building the Future’, was held following a booming trade exchange between the South American country and the Arab region, which has reached $20 billion in 2017, said a statement.

Nidal Abou Zaki, managing director of Orient Planet Group, who led a panel session focused on ‘Image, Branding, and Tourism’ at the event, highlighted that managing the reputation of countries is a vital and continuing process which requires accumulated efforts to meet its objectives of creating a positive and strong image that could boost economic and social development.

Zaki noted: “Arab countries need to take serious and deliberate steps to help improve their image in various communities in the international arena, which then becomes the ambassadors that further encourage and promote tourism.”

He also emphasised the importance of social media and traditional press in exploring the bilateral historical relations between the Arab World and Brazil and spur cultural communication, which is a strong component in boosting the respective countries’ reputation, adding that positive perception enhances the trade relations between their economies.

During the session, which was held with the participation of several officials, government representatives and private entities, experts, specialists and entrepreneurs, Zaki discussed the impact of digital technology in the tourism sector in the Arab World, where 42 per cent of the population are internet users, which has positively changed the image of the region across the world.

He underlined that developing the Arabic language of 15 million Brazilians of Arab origin from the second and third generations, most of whom hold prominent administrative and diplomatic posts which could help build strong bridges in enhancing the cultural, economic and historical ties between the Arab World and Brazil, and cited that the forum serves the opportunity to develop these relations and enhance cooperation to achieve a comprehensive and sustainable growth in trade and economy.

Brazilian President Michel Temer, whose roots were from Lebanon, attended the forum and spoke about the depths of the historical relations between the Arab World and Brazil. He expressed his desire to visit the Arab countries soon, and also shared the Brazilian government’s various social development initiatives aimed at further enhancing the lives of Brazilians.

Temer said: “Despite the robust trade growth between Brazil and the Arab World reaching $20 billion over the past year, we must work together to bring it to the next phase of development and open broad areas of investment and cooperation. Currently, we are discussing our trade agreements with some Arab countries at various levels.”

The forum also welcomed a speech by Ibrahim Al-Zabin, Ambassador of Palestine in Brazil and Dean of the Arab Diplomatic Corps, who highlighted the need to alleviate the bureaucratic procedures that hinder the entry of Arab products into the Brazilian market, it said.

He called on Brazil to support the Arab countries that seek to join the Mercosur, based on Brazil’s influential role in decision-making within the assembly countries. – TradeArabia News Service

A series of lectures was also held under the theme ‘Economic Scenarios: Brazil and Arab Countries’ followed by panel discussions on several topics, including technology and innovation, food security, and increasing trade in the halal sector, where Arab countries are considered as one of the biggest markets for halal products, such as food and cosmetics, among others and Brazil is the largest food exporter to Arab countries, said a statement.

The participants also discussed current investments and future opportunities between Arab and Brazilian enterprises as the South American nation gained about $700 billion in cumulative foreign investment. The event also focused on the potentials of renewable energy and sustainability where Brazil offered its vast expertise in the field, noting that 68 per cent of power sources in Sao Paulo comes from renewable energy, it added.

The forum also explored new strategies for Arab-Brazilian cooperation focused on investment and tourism. It also discussed the need to establish an Arab-Brazilian bank with large capital to meet the growing needs of the two countries, joint initiatives to develop biomedical and engineering industries, developing the transport sector aimed at enhancing inter-regional trade and establish mega investment projects in heavy industries, logistics, renewable energy, among others.

The Arab countries have recently been included as a strategic hub for Brazil through the Secretariat of the Presidency, which works to promote strategic political and economic partnership. It was also revealed during the forum that research is underway which explores the possibilities of establishing an investment authority which will promote cooperation between Brazil and the various Arab countries in key investment areas.

The speakers at the event concurred that considering Brazil’s economic resurgence, which is now the sixth largest economy in the world, the next coming years will witness a stronger cooperation among these nations, given that Brazil and the Arab World enjoy a steady and inclusive relationship.

The meeting concluded on a high note which highlighted the importance of promoting and sustaining present and future growth and endorsed the need to take this historic initiative to the next level and bring fruitful cooperation, leading to increased trade relations and cultural, tourism and technological exchange, it stated.

Source: TradeArabia News Service

 

Brazil mid-April inflation accelerates, but less than expected

Brazil’s inflation rate accelerated for the first time this year in mid-April but still undershot economist expectations, keeping the central bank on track to cut interest rates to an all-time low next month.

Consumer prices tracked by the benchmark IPCA index rose 2.80 percent in the 12 months to  mid-April, government statistics agency IBGE said on Friday, slightly below the median 2.84 percent estimate in a Reuters poll.

The reading underscores the central bank’s struggles to lift inflation back to this year’s target range of 4.5 percent plus or minus 1.5 percentage points after missing it for the first time last year.

High unemployment and widespread idle capacity, as well as an unexpectedly long stretch of food deflation, have kept a lid on price increases this year.

Food prices rose in mid-April after falling the month before, suggesting fading downward pressure. The IPCA rose 0.21 percent from the month before, a faster monthly rate than March but still below a consensus 0.25 percent estimate.

But the slow acceleration in inflation may not be enough for it to end the year at the target’s midpoint, allowing the central bank to extend the deepest rate-cutting cycle in a decade at its May meeting.

A central bank survey put 2018 inflation at 3.48 percent, accelerating to 4.07 percent in 2019.

Central bank chief Ilan Goldfajn has repeatedly stressed a plan to cut the benchmark Selic interest rate by another 25 basis points next month and then stand pat as it considers the economic outlook.

Source: Reuters

Brazilians Become More Optimistic about Their Own Financial Situations

According to a poll conducted by the Datafolha institute, the improvement in terms of expectations that Brazilians have regarding their own financial situations did not translate into a more optimistic take on the country’s economic growth.

The poll revealed that 46% of those interviewed believe their financial situations will improve – in the previous poll, which was released in November of 2017, 43% maintained this position. Additionally, the percentage of Brazilians who believe their financial situation will deteriorate went down to 13% versus 19% in the previous poll.

The improvement may be slight, but little by little, it is nearing the all time high that was registered back in July of 2016, two months after former president Dilma Rousseff (PT) had been removed from office and the administration of Michel Temer (MDB) had begun.

Optimism is highest among families whose household income is no greater than two minimum wages: 47% of them believe that their finances will improve.

However, this optimism concerning personal finances does not reflect a more positive view of the Brazilian economy: 41% of those interviewed believe the country’s economy will stay the same. The portion of Brazilians who believe the economy will improve barely changed since the last poll, while the number of Brazilians who believe the economy will deteriorate went down to 26%.

Source: Folha de S. de Paulo

Goldman Sees 14% Brazil Real Jump by July; Says Buy Stocks

The bank that warned South America’s biggest economy was sinking into a depression back in 2015 now has Brazil as among its top picks in emerging markets that are “powering ahead” in face of rising global interest rates and protectionism fears.

“Despite the drawdown in developed-market equities and spike in volatility, emerging market foreign exchange and equities have been resilient,” Goldman economists including Andrew Tilton in Hong Kong and Alberto Ramos in New York, wrote in an April 17 note. There is still “room to grow” for emerging markets, they said.
Among the group’s recommended trades and “conviction views” is going long Brazilian equities, and buying the currencies of Brazil, Chile and Peru against the dollar. Perhaps the most eye-catching is a forecast for the Brazilian real to reach 3 per dollar in three months, from 3.4078 late Tuesday — a surge of almost 14 percent.
Goldman’s call stands out against the median forecasts of 3.30 for the end of June and 3.33 for end-September in Bloomberg surveys.
Another winner in Goldman’s view is South Africa’s rand, seen climbing about 9 percent over the coming year, to 11 per dollar from 12 on Tuesday. The currency is “one of the clearest idiosyncratic opportunities,” with the new government offering a confidence boost, the Goldman analysts wrote.

On Brazil, Goldman’s not alone in its optimism. A survey at a conference of money managers and analysts in Miami last month showed the country to be the investor darling, in the run-up to presidential elections in October.

More broadly, 67 percent of participants in a monthly fund-manager survey by Bank of America Merrill Lynch released Tuesday said Latin America is most likely to outperform within emerging markets in the next six months.

The Goldman analysts flagged that there are still “non-negligible risk of policy reversals” in Brazil, along with Mexico — which faces presidential elections in July.

Even so, Latin America’s economic backdrop is seen improving further in 2018, with a pick-up in growth and inflation moderating in a number of countries, the bank said.

Source: Bloomberg

Brazil secures WTO backing in dispute with Canada’s Bombardier

Brazil has secured World Trade Organization backing to press its claims against Canada in a dispute over what it says are unfair subsidies for Bombardier Inc’s CSeries jets, a preliminary WTO ruling published on Tuesday showed.

Brazil launched the WTO dispute last year, saying the CSeries had received $3 billion in federal, provincial and local subsidies.

Canada objected, saying Brazil had unfairly broadened the case by including four claims that went beyond its original complaint.

Those claims included regional programmes in Montreal and Quebec and Canada’s “superclusters” initiative which sought to invest up to C$950 million over five years in highly innovative industries.

Brazil said it had only found out about those four initiatives later, when the United States was investigating potential Canadian subsidies, and said their inclusion did not change the essence of the dispute.

 The United States imposed heavy duties on the CSeries jet last year in a damaging trade dispute with Boeing, prompting a sale of 50.01 percent of the CSeries to Europe’s biggest aerospace group Airbus.

In their preliminary ruling on the case, the three-person WTO dispute panel threw out Canada’s argument.

“The panel agrees with Brazil that the four measures at issue fit within the scope and essence of the dispute as described by Brazil, so that the scope of the dispute is not expanded by Brazil’s panel request,” the preliminary ruling said.

Canada had also argued that Brazil had failed to identify specific payments from Canada’s Centre technologique en aérospatiale (CTA), the National Research Council (NRC), and the Natural Sciences and Engineering Research Council of Canada (NSERC).

But the panel rejected that argument too.

 “We conclude that Canada’s and Québec’s provision of funding, technology transfer, in-kind goods and services, and other support through the CTA, the NRC, and the NSERC is identified with sufficient particularity in Brazil’s panel request and therefore falls within the Panel’s terms of reference,” the panel said.
Source: Reuters

Brazil demands rules on data flows from WTO

The country wants the multilateral global trade body to start a debate on regulation and governance.

Brazil is pushing for the establishment of rules around Internet data flows and has presented a document on the subject to the World Trade Organization (WTO) last week to stress the urgency of starting a more objective debate.

This is a follow-up on the discussions about e-commerce rules seen at the latest WTO ministerial conference held in Argentina in December, where some 80 countries have expressed some willingness to start negotiations around the theme, one of the most sensitive topics being being around online data governance.

In the document present to the WTO last week, Brazil attempts to create a sense of urgency around the debate – this includes the situations and conditions under which regulators can restrict data flows, in aspects not only limited to user privacy, but also cybersecurity and spread of false information online.

The country is also pushing for rules around the responsibility of online platforms around the data they handle, as well as the definition of ownership for information generated across jurisdictions. This would in theory enable the creation of rules around data flows from one country to another.

The demands from Brazil for the WTO to take on the negotiation of new Internet-related issues come as the debate continues around the alleged misuse of personal data of more than 71 million people by Facebook, Cambridge Analytica and other companies.

However, the inability of the WTO to address the issues related to data and e-commerce has been challenged for some time – this is especially relevant now with the rise of other smaller regional trade agreements such as Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA), which do cover digital trade rules.

Such expansion of the WTO remit would require a total redefinition of the standards and procedures for negotiations that are currently in place – and whether the body is able or willing to overhaul its own structures in order to keep up with the current digital trade debate is yet to be seen.

Source: ZDNet.

Unilateral conduct probes to get boost in Brazil; digital economy a priority, CADE official says

The Brazilian competition authority is boosting its investigations into unilateral conduct by assigning one official in each division at the agency to focus on companies’ abuse of dominance, the agency’s top investigator said.

Alexandre Macedo, superintendent at the Administrative Council for Economic Defense, or CADE, said at a conference* in Washington on Wednesday that the goal is to increase the agency’s efforts on unilateral conduct cases without dropping its efficiency in merger analysis.

Traditionally, officials investigating monopolistic conduct need to pause their investigations to give priority to incoming merger reviews, which have a deadline to be completed.

“We’re assigning more people to analyze unilateral conduct … but the challenge is not to increase the time to review mergers,” Macedo said.

CADE has eight divisions, five in charge of merger investigations and three responsible for cartel investigations. Macedo said that the plan is to make one official in each division responsible for unilateral conduct investigations.

— Digital economy —

The digital economy, which still has many uncertainties, will also be a priority for the regulator, Macedo said.

“We are studying this, we have a lot of cases in Brazil right now,” he said mentioning the four Google cases that are still pending.

“But we have no idea of what to do. Nobody does. Nobody can understand where the market is going, how much you have to intervene [in this sector],” he said. “This is a complete revolution in the mainstream antitrust analysis.”

“Digital economy right now is our nightmare,” Macedo said.

Source: MLex Market Insight

Inflation Rate Significantly Decreases, Taking Analysts by Surprise

Brazil’s official inflation rate significantly decreased in March, strengthening the view that the Central Bank has enough room to further decrease interest rates.

The Brazilian Institute of Geography and Statistics (IBGE) reported on Tuesday (the 10th) that the Broad Consumer Price Index (IPCA) went up by 0.09% in March, well below the 0.32% that had been registered in February of this year, as well as the 0.25% increase in March of 2017.

During the 12 months leading up to March, the index rose 2.68%, but when the cutoff point was February the index climbed to 2.84%. Either way, the rate is well below the floor of the inflation target that was stipulated at 4.5%, with a margin of plus or minus 1.5 percentage points.

This was the lowest inflation rate for the month of March ever since the Real currency was introduced in 1994, falling below the expectations of economists who participated in a Reuters survey and had predicted a monthly increase of 0.12% and a yearly increase of 2.71%.

“Our impression is that there is still some uncertainty when it comes to the directions the economy could go in,” said Fernando Gonçalves, who oversees the IPCA index.

“There is still economic instability due to unemployment and income. Some people are still insecure when it comes to spending,” Mr. Gonçalves said.

The Central Bank (BC) has already cut the basic interest rate (Selic) to a historic low – a yearly rate of 6.5% – and it has indicated that it may reduce it even further in May, before the adjustment period comes to an end.

The decrease in terms of the March IPCA rate is mainly due to the reduction of airfare prices, which are on average 15% cheaper.

Source: Folha de S. Paulo