Beroe: Energy Prices Hurt Brazil’s Growing Automotive Production

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MetalMiner welcomes guest contributor Suriya Anjumohan, a lead analyst at Beroe Inc., which specializes in tracking various steel markets and related alloys. Beroe is the premier global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight.

Brazil is South America’s largest consumer market. Among the other emerging economies it is still considered as a bustling market with a lot of potential customers.

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The Brazilian automotive industry is one of the fastest-growing automotive manufacturing markets in the world which accounts for almost 20% of the country’s GDP. Based on strong growth in the last few years, Brazil has now become the fourth-largest automotive market globally next to China, the USA and Japan. The dual effect of strong domestic demand with tax incentives has seen the regions automotive sector witness strong growth compared with unsteady global demand. In total, there are about 57 plants, which in 2013 produced 4.3 million vehicle units by production and are estimated to reach 5.7 million units by production in 2016 with a CAGR of 8-10% over the period 2013-16.

BeroeBrazilGraphic1

Source: OICA, Statista

The Brazilian government is actively deterring vehicle imports and working to encourage the construction of assembly plants there. This made most of the domestic and international automakers are set up new factories in Brazil at a steady clip. Chery Automobile is setting up its new factory there and it is a vivid example of Chinese industries expanding in the Brazilian market.

Further, there are many other international automotive players who have planned huge investments in Brazil over the years to come. This would increase their consumption of aluminum die castings for engine and transmission components. Nissan, Volkswagen, General Motors and Ford Motor Co. are all expected to make production investments of more than $1.5 billion each in Brazil over the next 5 years, according to Future Investments – The Brazil Auto Sector.

Brazil Energy Prices Shoot Up

Brazilian energy generation is characterized by being predominantly hydroelectric. The current high reliance on hydro power has not only enhanced environmental concerns but it also compromises on the supply security front. Heavy dependence on hydro generation has made the Brazilian electricity sector highly venerable to climatic conditions. To ensure a higher supply security and stability in prices, the Brazilian government is trying to supplement current generation with thermal power (fuel diversification) as necessary to fill the reliability gap.

From a short term prospective (2-3 yrs.), it is anticipated that the Brazilian electricity sector won’t be able to implement these diversifications thereby the volatility in the electricity prices will continue to prevail. Although from a long term prospective (5-10 yrs.) the prices will become more competitive with advent of fuel diversification in the coming years there-by giving industries an upper hand during energy/electricity procurement.

A note about the contributor: Beroe is the premier global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight.

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