Fitch: Weak Currency No Panacea for Brazilian Exporters

CHICAGO--()--The depreciation of the BRL versus the U.S. dollar since the beginning of 2014 to BRL3.12 from BRL2.36 will not enhance exporters' global competitiveness to the level they enjoyed at the beginning of the millennium, according to Fitch Ratings. Many corporates focused on the domestic market will also continue to be threatened by imports and rely on protective measures.

'Brazilian corporates cost structures have been devastated by inflation during the past decade,' said Joe Bormann, Managing Director at Fitch. 'The exchange rate would have to depreciate to around BRL3.75 to bring them back to competitive positions they enjoyed in 2004.'

Despite cost pressure over the past decade a few industries continue to thrive. Market pulp producers such as Fibria and Suzano have unparalleled cost structures due to the fast growth rate of the eucalyptus tree. Protein companies have strong global positions due to abundant natural resources such as land and water. Iron ore is a mixed bag. Vale is a dominant industry play due to its size and the high quality of its iron ore, but CSN, Usiminas and Gerdau's mines are not competitive at low prices.

In contrast, Brazil has lost its competitive position as an exporter of steel to countries such as Russia, Turkey and China. This has made the industry highly reliant upon import quotas. Two other export businesses are also struggling sugar/ethanol and automotive and a number of defaults have occurred in the past few years. Conditions aren't expected to improve in the near term. Weak economic conditions have stifled demand for automobiles. Increases in the price of ethanol are only possible if accompanied by higher gasoline prices at the pump, which is unlikely following the recent plunge in international oil prices to multiyear lows.

For more information on these topics a special report titled 'Brazilian Exporters: The Good, the Bad, and the Ugly' is available on the Fitch Ratings web site at www.fitchratings.com, or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Brazilian Exporters - The Good, the Bad and the Ugly (Weak Currency Is No Panacea During Dark Days)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863469

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Contacts

Fitch Ratings
Joe Bormann, CFA
Managing Director
+1 312-368-3349
joe.bormann@fitchratings.com
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Paula Bunn
Analyst
+55 21 4504-2218
paula.bunn@fitchratings.com
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Joe Bormann, CFA
Managing Director
+1 312-368-3349
joe.bormann@fitchratings.com
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Paula Bunn
Analyst
+55 21 4504-2218
paula.bunn@fitchratings.com
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com