24 August 2007 18:00 [Source: ICIS news]
By John Waggoner
HOUSTON (ICIS news)--Brazil, the largest petrochemical producer in Latin America, is unfazed by the recent financial market turmoil brought on by US banks and the collapse of mortgage-backed securities.
As financial markets have been forced to liquidate holdings, ?xml:namespace>
In the past two years,
On Friday, the currency was trading at reais 1.98 to the dollar, compared with R1.84 on 24 July. Even in the ague of the
The Bovepsa stock exchange was trading above 52,000 points on Friday, having recovered from a drop on 16 August to 48,015 points, or over 9% in inter-day trading, having reached record highs of 58,185 points on 19 July.
There is a broad consensus in
Unless the situation worsens dramatically, Brazilian domestic demand should remain strong as well and help offset lower US demand.
In short, this may be the best crisis to hit
President Luiz Inacio Lula da Silva said in the wake of the market turmoil that
“We have learned in summertime to store food to eat in the winter,” Lula said.
The resilience of the Brazilian economy owes itself to a cycle of prosperity that has helped bolster foreign currency reserves and reduce dependence on foreign investment.
The Central Bank through July has accumulated foreign currency reserves at record high levels of $155bn according to Finance Minister Guido Mantega.
The current crisis could have thrown the country into a recession just a few years ago, according to Luiz Carlos Mendonca de Barros, a leading Brazilian economist.
A few years ago, the impact of tightened liquidity would have caused Brazilian central bank currency reserves to evaporate. As a result, the Brazilian real would have plummeted sharply in value against the dollar and the Central Bank would have had to raise interest rates to herd dollars back into the economy.
According to IMF managing director Rodrigo Rato, however, the current market malaise should not prove an emerging market powder-keg.
“Unlike previous crises, this one should not affect sovereign risk,” he said in a visit last week to
In fact, Moody’s this week upgraded
This upgrade puts Brazilian sovereign risk one step below investment grade, which will improve the ability of private companies such as the large petrochemical producers to obtain credit on the international capital markets.
Rato said that the upgrade in the midst of a crisis is significant.
“This shows that
According to Carlos Mariani Bittencourt, chairman of the Brazilian Chemical Industry Association (Abiquim), the moment remains auspicious for growth of the country’s petrochemical industry.
The Brazilian executive said the most pressing concern to the economy is not the current situation in global financial markets but the heavy amount of public sector spending.
“The industry is producing at full steam,” Mariani said in Portuguese, adding that the momentary hiccup in the global financial markets has not diminished enthusiasm in local industry.
With Brazilian GDP estimated to close the year with 5% growth compared with 2006, the petrochemical industry could see demand grow in the range of 7% compared with the previous year, Mariani said.
“Demand is very strong, the stock market and currency have mostly recovered, and nobody here has any sense of panic,” he said.
Even if the currency weakens enough to pressure feedstock prices upwards, Mariani said it is not likely to hold back the industry’s firm growth this year.
“There is sufficient demand to support an increase in naphtha prices,” he said.
Mariani attributed the growth in the Brazilian petrochemical industry to better economic fundamentals such as lower interest rates, lower inflation, better levels of consumer spending and income and increased access to credit.
“Every week in the newspapers here in
Construction growth represents strong demand for polyvinyl chloride (PVC) and other chemicals such as epoxies used in cement.
“Interest rates in
Automobile sales are estimated to grow by 20% this year, which represents significant demand for a variety of plastic components and rubber. If export demand has dropped a little bit for cars, local demand is more than compensating for it, Mariani said.
“There is little doubt that the industry will grow this year more than it did last year, even with the crisis,” he said.
($1 = R1.98)
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