Brazil's Big PC Tune-in and Turn-on

Brazil ranked as the fifth-largest PC market last year as bank credit offers, installment plans and growing prosperity fueled purchases, especially among low-income consumers. The shift is a boon to Hewlett-Packard and Dell Inc., the world's top PC makers. A tax break for PC makers has allowed them to cut prices and compete with unregulated sellers whose so-called gray- market machines dominated the market.

``You have a consumer market that's exploding as people have more access to credit,'' said Mario Anseloni, managing director of Hewlett-Packard's Brazil division. ``That's transforming the whole economy.''

Total Brazilian PC shipments rose 38 percent to 10.7 million units last year, according to research firm IDC in Framingham, Massachusetts. That marked the first time that shoppers bought more PCs than television sets in the country. Brazil's PC market, which ranked seventh in 2006, is poised to take third place by 2010, behind the U.S. and China. Japan and the U.K. are now third and fourth, IDC said.

Low-income families, eager for Internet access, are buying PCs at a faster pace than any other group, according to the Brazilian Internet Steering Committee. Spending by Brazilian businesses on software, services and computers rose 12 percent to $20.7 billion last year, IDC said. Brazil accounted for almost half of technology purchases in Latin America. Outlays may rise another 12 percent this year to $23.3 billion, IDC said, compared with 4 percent in the U.S.

Brazil, Petrobas, Investment Grade, Soya Exports, Shipbuilding and Consumer Demand - We Have Take-Off!

Petroleo Brasileiro SA, Brazil's state-controlled oil company, continues to drill away and is now about halfway through its offshore Carioca deposit according to Mines and Energy Minister Edison Lobao said. Carioca forms part of Brazil's new pre-salt region, which lies beneath 2,000 meters of water and as much as 4,000 meters of seabed. The pre-salt region is also home to the Tupi field, which holds an estimated 8 billion barrels of oil and is the largest Western Hemisphere oil discovery in three decades. Lobao is also quoted as saying that Betrobras will need more time to determine the size of the Carioca field, so I suppose for the time being it's just a question of "on we go with the drilling".




Following up on my post about oil rigs earlier in the week, Petrobras have also announced plans to lease 146 Brazilian-built ships over 6 years to support offshore oil exploration and production. The purchases will be paid for in part with some of the $50 billion Petrobras has earmarked for investment on Brazilian oil equipment over the next four years. It is Petrobras' intention to offer long-term leases to companies that agree to build the ships in Brazil with 70 percent to 80 percent local material.

Petrobras expects to spend $112 billion on expansion in the 2008-2012 period, helping support efforts by the government, its controlling shareholder, to maintain GDP growth rates of 5 percent or more a year. The ship-building plan is part of an industrial policy program which was announced by Brazilian President Luiz Inacio Lula da Silva earlier last week.

To boost shipbuilding in Brazil, Petrobras is helping finance the construction of new shipyards and the renovation of old facilities, including yards in Rio Grande in Brazil's south and in Suape, near the northeastern port city of Recife.

In the 1970s, Brazil was the world's second-largest shipbuilder. Its industry was almost wiped out by the oil shocks of the 1980s, debt defaults and inflation. A key plank in Lula's first-term victory in 2002 was revitalization of the shipbuilding industry. A $3 billion plan for tankers is already under way.

Clearly this rapid expansion is being financed by the ongoing commodities boom, and sustainability will depend with some high degree of sensitivity on the evolution of that boom. Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in January 2003 on rising world demand for soybeans, iron-ore, beef and cars. The economy expanded 5.4 percent in 2007, the fastest rate in three years, buoyed by rising exports and falling interest rates.

Obviously were there to be a negative commodities shock caused by a rapid slowdown in global growth and large scale capacity overhangs then all of this could go the same way as the 1908s boom, but there are reasons for thinking that this time round - and despite a possible short term slowdown in global growth in 2009 and a temporary downward adjustment in commodity prices - that the mid- to longer-term outlook (5 to 10 year horizon) is pretty bullish. I have elaborated on some of the relevant points in this article/post.

Also Bloomberg today have a very interesting interview with Roberto Egydio Setubal, head of Brazil's second-biggest non-government bank (Banco Itau Holding Financeira). Setubal said his nation is in a "transformation" that's creating the best conditions for business he's ever seen.

Brazil, Latin America's largest economy, has broken a cycle of boom and bust because of rising commodity exports and will enjoy sustainable annual growth of 4 percent to 5 percent, Setubal said in an interview this week in Sao Paulo. An investment-grade rating granted by Standard & Poor's last month will make Brazil a magnet for foreign investors.

Setubal is expanding abroad and at home, capitalizing on the 31 percent rise in Brazil's real against the dollar since May 2006, the collapse of inflation from almost 5,000 percent in 1994 to 5 percent now, and losses at global competitors. He's opening offices in the Middle East and Asia, hiring bankers from Deutsche Bank AG and Merrill Lynch & Co. and looking to buy Brazilian assets that may get dumped by foreign firms at discount prices.

``I don't see Brazil going back,'' the 53-year-old chief executive officer said at his office in Sao Paulo. ``The strong currency and investment grade are here to stay.''

Brazil's $1.07 trillion economy grew 5.4 percent in 2007, the fastest in three years. Controlled inflation led the central bank to cut the benchmark interest rate to as low as 11.25 percent in September, encouraging people and companies to borrow record amounts and boosting profit at Brazilian banks. Lending has increased every month since February 2004 to 992.7 billion reais ($600.8 billion) in March.



Brazil, the biggest debtor among emerging markets for decades, became a net foreign creditor in January after international reserves surged to a record $195.8 billion.

Brazil was the third-biggest market for initial public offerings globally in 2007, according to Bloomberg data. This year, only three companies went public, reflecting the reduced appetite for risk by international investors. Foreign investors bought 75 percent of the shares sold in public offerings in Brazil last year and 49 percent of the ones sold this year, according to the local stock exchange, Bovespa.

``This is a big change in Brazil,''Setubal said. ``Politicians used to believe spending was very popular and nowadays they learned that stable prices is much more popular.''

Update Tuesday 20 May 2008

I another "sign of the times" piece of news Petroleo have today passed both Microsoft and Industrial & Commercial Bank of China to become the world's sixth-largest company by market value.

Petrobras, as Brazil's state-controlled oil producer is known, climbed 3.8 percent to 50 reais, pushing its capitalization to 487.9 billion reais ($295.6 billion), according to data compiled by Bloomberg. Microsoft, which yesterday revived the possibility of purchasing Yahoo! Inc., fell 1.8 percent to $29.46, lowering its overall value to $274 billion. ICBC's A shares listed in Shanghai rose 0.2 percent to 6.22 yuan. The market value of the world's largest bank is 2.02 trillion yuan ($289.3 billion).

Six of the top 10 companies by market value are energy or mining companies, while three are from China.

Petrobras, which has seen its market value quadruple since 2004, is worth 41 percent less than Exxon Mobil, the world's largest company at $498.6 billion. By overtaking Microsoft, Petrobras also becomes the third-largest company in the hemisphere after Exxon and General Electric.

Brazil Retail Sales March 2008

Brazil's retail sales rose 11.4 percent in March, capping the strongest quarter on record, as a credit and investment boom fuels what is Latin America's largest economy. The March gain was led by computer and office equipment sales, the national statistics agency said today in Rio de Janeiro. That put the quarterly expansion at 12 percent, the most since the agency began records in 2000.



Policy makers last month raised the overnight rate a half- point to 11.75 to rein in inflation. Economists are predicting the central bank will increase lending rates further to 13.25 by year end, according to the median forecast in a central bank survey of 100 financial institutions published this week.

Brazilian consumer prices rose 0.55 percent in April, the most in 2008 to date. The annual rate of inflation was 5.04 percent last month, above the mid-point of the central bank's target of 4.5 percent target plus or minus 2 percentage points.

Petrobas Deep Sea Drilling Capacity

Petroleo Brasileiro SA, Brazil's state-controlled oil company, has reportedly leased about 80 percent of the world's deepest-drilling offshore rigs to explore prospects including the Western Hemisphere's biggest discovery in decades. Petrobras is hiring rigs that can drill in at least 3,000 meters (9,800 feet) of water according to Chief Executive Officer Jose Sergio Gabrielli. The world has 21 such vessels, according to Rigzone.com, which tracks the offshore drilling industry.


Petrobras is reportedly negotiating for as many as 17 more vessels to probe the Tupi discovery and neighboring fields. The company already controls almost seven times as much capacity as the next biggest user of rigs that can drill in 7,500 feet of water. U.S. and European oil companies are likely to have to pay $50,000 more per day to lease deepwater rigs during the next three years because Petrobras has already contracted for so much of the worldwide fleet. Such units are designed to cope with high seas and hold equipment needed to bore beneath the seafloor and identify oil and gas deposits as much as 6 miles below the ocean surface.

Petrobras has signed leases this year for six deepwater rigs, more than twice as many as any other producer, according to Dahlman Rose. The contracts have an average duration of five years and four months at rates of $410,000 to $580,000 a day.

Petrobras plans to start pumping oil in the first quarter of 2009 from Tupi, the biggest find in the Americas since Mexico's 1976 discovery of the Cantarell field in the Gulf of Mexico. Petrobras also is evaluating as many as seven nearby fields, including the Carioca prospect, according to Gabrielli who said Petrobras began signing multiyear drilling leases as far back as 2004 because it foresaw a shortage of deepwater vessels.

Well done Petrobras.

Brazil Inflation April 2008

Brazilian consumer prices had their biggest increase in four months in April because of higher food costs. Consumer prices, as measured by the government's benchmark IPCA index, climbed 0.55 percent last month from 0.48 percent in March, the government's statistics agency said in a report distributed today in Rio de Janeiro. Brazil's inflation rate in the 12 months through April was 5.04 percent.






Brazil's central bank policy makers increased the benchmark interest rate for the first time in three years last month in an attempt to contain inflation. Inflation is emerging as a threat to economic stability after years of ``quiescence,'' and officials must be wary of policies that stoke consumer prices, the International Monetary Fund's deputy chiefJohn Lipsky said yesterday.

``This inflation speed-up must be taken seriously as it creates potentially significant challenges to economic stability,'' John Lipsky, the IMF's first deputy managing director, said in a speech in New York today. A return to 1970s-style high inflation and rising price expectations ``cannot be discarded out of hand,'' he said.

While the surge in energy and other commodity prices is the main cause of the danger, low central bank interest rates and a falling dollar are also contributing, Lipsky said.

Brazil's food prices climbed 1.29 percent in April from the previous month, up from the 0.89 percent increase in March. The central bank targets inflation of 4.5 percent plus or minus 2 percentage points.