Brazil Market Trends


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Brazil Market Trends

  1. 1. BRAZIL onTokyo Forum 2010 mkurcgant@arcweb 1
  2. 2. Brazil in South America South America is composed by 13 countries, totalling 17,8 million square kilometers. Total population of South America is about 400 million people. From these countries, Brazil is the largest size one, with area of 8,5 million square kilometers (47,7%) and the largest in population, close to 200 million people. Brazil is the fifth largest area size country in the world (behind Russia, Canada, China and USA) and the fifth largest in world population (following China, India, USA and Indonesia). Brazil language is Portuguese. All the remaining South American countries are Spanish speaking. Brazil GDP is 1,574,039 Million US Dollars, the eigth in the rank worldwide. The recent world crisis in 2009 caused a small negative impact of 0.2% in GDP. This year the economy is having a fast recovery and is estimated to grow 7.3%. Job postions lost at the crisis period have already been recovered. Ind strial ha e alread reco ered Industrial production is now at the same level it was prior to the economic turmoil. 2
  3. 3. Brazilian Regions The country is formed by 26 states, plus a Federal District, are divided in five regions with specific characteristics: North Area (green) generates 6.0% of GDP is driven mainly by the Amazon forest, has few industrial activities living mainly from kettle and some agriculture. Northeast Area (brown) generates 9.3% of GDP used to heavily depend in tourism, but is slowly growing its industrial strengths, with new projects being launched. Central-West Area (yellow), 4.1% of GDP, developed strong kettle and agricultural activities, and is now4.32 km strongly expanding its agro-industry business such 20 as pulp and paper, and ethanol plants. paper plants Southeast Area (red) with 60.7% of GDP, and South 4.328 km Area (blue) with 19.9% of GDP are the most powerful industry and business areas, strong in all main vertical markets. About 90% of whole GDP is i l k Ab f h l i produced within the dotted line limits. Just São Paulo state is responsible for 40% of whole GDP. 3
  4. 4. Brazil Vertical Markets (1)Agro-BusinessDue to country size, fresh water availability and solar radiation, country produces a large variety ofagriculture and animal origin products: Coffee, soya-bean, sugar-cane, pine and eucalyptus wood,corn, vegetables, fruits plus kettle, pork, chicken meat and raw materials for pulp (eucalyptus),alcohol and sugar (sugar cane), orange juice, etc. l h l d ( ) j i tAlcohol became an important topic in the energetic grid. There are now over 400 sugar/alcoholplants in operation. Originally this was a family type of business. Now, multinational companiessuch as Shell, British Petroleum and Shree Renuka from India, have been getting into this business.Ethanol pipelines are under design by several mills together with Petrobras and Mitsui. pp g y gFood and beverages are manufactured and export companies are spread all over the country.Automobile, Trucks and TractorsThe main automobile companies have local production facilities: Ford, General Motors, Fiat,VolksWagen, Toyota, Hiunday, Honda, Renault Pegeout Citroen etcVolksWagen Toyota Hiunday Honda Renault, Pegeout-Citroen, etc. A large percentage ofproduction is exported.One important development done in Brazil reflects the importance of sustainability issues.When you buy “Gasoline” for your car in Brazil, in fact you get a blend of gasoline and 20 to 25%of ethanol. But in all gas stations, besides gasoline, you can fill the tank with Alcool, which ispure ethanol. The automobile industry developed the so called FLEX cars. On those you canchoose to use any of the two fuels (Gasoline or Alcool) or any combination of them, dependingon the then current prices. The FLEX engine automatically sets the engine compressionaccording to the used fuel selection. Today Alcohol consumption is higher than Gasoline.Total production of light cars exceeded 2 3 million units in 2009 Brazil is now Nr 5 in the rank 2.3 2009. Nr. rank.There is a huge amount opportunies to supply parts and production equipment to this vertical.Robots are used intensivelly. Investments for the next 4 years are estimated to be 32 Billion US$. 4
  5. 5. Brazil Vertical Markets (2)AerospaceOne of the most successfull companies in Brazil is Embraer that is today the third largest airplanecompany in the world, just behind Boeing and Airbus.Embraer started 40 years ago developing and building small comuter planes, for 18 passengesand from then on grew in volume and in airplane sizes offering today jets for 120 passengers, df th i l di i l i ff i t d j t ftraining airplanes, military airplanes, etc. They have already shipped more than 5000 planes, usedin 88 countries. Embraer has a partnership in China with Avic for a plant in Harbin.There is an interesting market for the suppliers for parts, services and equipment to them.Current business of Embraer are around 20 Billion US Dollars per year. p yOil and GasPetrobras, the government oil & gas company, is by far the largest company in Brazil.And now, in 2010, it is among the largest energy companies worldwide.Total oil production today is over 2 million barrels a day, mainly of heavy oil extracted by offshore dayplatforms. Petrobras has a high degree of knowledge in working with deep oil extraction, withwater depths of 1000 to 2000 meters. New reservoirs found under the pre-salt layers will allowmore than double extraction capacity, but at 5000 meters of soil at bottom of water layers, formedby rocks, sand and salt.Petrobras has 17 refineries, 11 in Brazil and 6 abroad. In Brazil current refining capacity is of 2.0 f f fmillion barrels a day. Two new refineries are under construction, and two other are beingdesigned.Petrobras is heavily involved with Gas and with other energy issues, becoming associated withsome Ethanol producers, besides other developments in Bio Energy, Bio Diesel, etc. Totalinvestment recently announced by Petrobras is 224 Billion US Dollars in next 4 years and 700Billion Dollars in next 20 years. 5
  6. 6. Brazil Vertical Markets (3)Petrochemicals & ChemicalsThe petrochemical industry in Brazil started on the 70´s with implementation of three Basic RawMaterial plants, in 3 different locations in South, Southeast and Northeast. Around these 3 locationsa series of downstream polymer plants were constructed. The model consisted, in general, ofcompanies owned 1/3 by Petrobras, 1/3 by a technology supplier company and 1/3 by a localcompany. On the recent years a series of merges and acquisitions ended up in a giant petrochemcomplex called Braskem, that has dozens of plants in Brazil and partnerships in other countries.One of the exciting Braskem projects is the one for “green polyethylene” obtained from ethanol.In order to not let Braskem as a monopoly, Petrobras is implementing a project called COMPERJ inRio de Janeiro, for which they are looking for partnerships in the downstream plants.On the chemical area major foreign companies have their plants: Rhone-Poulenc, Solvay, Dow,DuPont and others. Investments for the next 4 years are estimated in 34 Billion US$.Metals d Mi iM t l and MiningBrazil is rich in minerals.VALE is a company that started as governmental and has been privatized later on. They havediversified mineral activities in iron ore (mining to pelletizing plants, and participation in steelmills), aluminum, nickel, copper etc., both in Brazil as on other countries like Canada, Guinea, ), , , pp , , ,Oman, etc. VALE produces 300 million Ton/yr iron ore and plans to spend 90 Billion US Dollars infour years to raise capacity to 450 million Ton/yr.Regarding metal industries there are 27 steel mills in the country from which 12 are integrated(producing from iron ore) and 15 are semi-integrated (using pig iron or scrap), 13 companiesowned by 8 major groups, with total installed capacity of 42 million tons of steel per year Major groups year.owner groups are ArcelorMittal, Gerdau, CSN, ThyssenKrupp, Votorantim, Usiminas.Investments for the next 4 years are estimated to be 51 Billion US$ in steel mills. 6
  7. 7. Brazil Vertical Markets (4)Pulp and PaperDue to the incredible fast growing eucalyptus trees, modified through genetic development (incertain areas the tree grows 1 centimeter/day), they can be cut in 5 and a half year, and reused 3times, pulp business expanded and Brazil has today huge pulp plants as Fibria, International Paper,Cenibra, SC Suzano, Klabin and other plants under construction, mainly f pulp exports. These plants forare mainly for short fiber and have been using the latest technology in automation, reachingunpaired low production costs. Current production exceeds 13.4 million Tons/yr, from which 8.2million are exported. The existing companies, and some new ones are planning to invest more than20 Billion Dollars in the next 4 years.EnergyBrazil is rich in water resources for hydro-electric power generation. Until some years ago hydrorepresented more than 95% of our energy grid. Itaipu is the second largest Hydro plantworldwide.worldwide More recently, with the needs to expand energy availability alternative sources have recentlybeen considered. There are 2 Nuclear plants running, and a third being designed. A series ofthermoelectric plants were implemented using fossil fuel. Today, many thermoelectric arerunning with sugar cane bagasse, and other diversified bio products such as bark and otherbiomass, etc. In the Northeast area, where winds are always present from the ocean, and wheresunny days are usual, eolic and solar cells are being implemented. A new huge hydrelectricpower plant is under design on the Amazon area.In the next 20 years Brazil energy demand will move it from the current 11th in the rank to the 7th,advancing over Korea, United Kingdom, France and Germany, with a 3.3% per year growth,against the worldwide average of 2.6%.In the next 20 years, 750 Billion US Dollar investments will be needed to raise the offer of Oil &Gas, and electric energy generation, correspondig to 3,8% of worldwide energy investiments. 7
  8. 8. Automation , Information and OpportunitiesThe main Automation and Information Technology global manufacturers are operating in Brazil.Some companies have their own offices and operational divisions, others operate through localrepresentatives. The large customers normally declare a preference for a local operation.On the Automation area usual supplier names are ABB, Emerson, GE, Honeywell, Invensys,Rockwell, Schneider, Siemens, Yokogawa. Certain vertical markets have specific preferences, forexemple: Oil & Gas prefers ABB, Emerson, Yokogawa; Pulp & Paper prefers Invensys, YokogawaMining prefers ABB, Rockwell, Siemens; Steel industries prefer Rockwell, Siemens and Yokogawa.Trend is to integrate IT with Automation. On the IT arena, there is a general preference for SAP.Since the local market is heavilly loaded with opportunities, many of which remained in hold duringthe critical period of 2009, there are several niches for companies to enter in this business providingnot only goods, but also application engineering knowledge, detail egineering, integration services,installation supervision, training, start-up assistance, through partnering ventures with localcompanies.companiesAs a recente exemple, a multi million contract was signed in April 2010, between Petrobras on oneside and a company formed by the association of Mitsui (Japan), Sembcorp (Singapore) and UTC(Brazil), for the construction and operation to supply the electric energy, steam, water, hydrogen andthe sewage treatment for COMPERJ refinining and petrochemical plant in Rio de Janeiro. 8
  9. 9. The FutureAfter several critical years with huge inflationary levels, the economy has been having agood behaviour.Inflation has been set under control, in the range of 4 to 5% per year.Even low, in the range of 8500 US$ / th GDP per capita h bE l i th f /yr, the it has been steadily growing. t dil iPopulation is growing, at lower rates when compared to previous decades.Unemployment levels have been kept decreasing.Brazilian main bottlenecks are still due to the need of:More public investments in Education, in Health and in Security.Taxes than we currently have are high compared to other developing countries, 38%.On the next couple of years:2014 – World Soccer Cup will happen in Brazil2016 – Olympic Games will happen in BrazilBoth these events will push huge amounts of public and private investmens in:Airports, Ports, Mass Transportation (subways and fast trains)Hotels, Stadiums and as a consequence:Energy, Water and Sewage, Telecommunications, etc.Future seems to be bright. We are all excited with it. bright it Thank you mkurcgant@arcweb Mauricio Kurcgant +55 11 8673 6273 9