SAO PAULO, BRAZIL — Brazil's recently booming plastics industry should expect a slump in the automotive and appliance sectors as the latest result of a global financial crisis. However, officials expect the packaging and resin sectors to be unaffected.
The turbulence in Asia brought down the Brazilian stock market and led the government to defend the local currency, the real, doubling interest rates to 43.4 percent on Oct. 30.
On Nov. 10, Brazil launched a package of economic measures including budget cuts, tax increases and export incentives. On Nov. 19 the government announced it will reduce interest rates to 40.92 percent as of Dec. 1, yet such a load is still considered too high by the market.
The durable goods sector was the most affected. The electronics segment, which since March was suffering with the increased level of consumer debt, faced a 4.5 percent decline in sales from January to September, according to Eletros, the Brazilian association for appliance makers. The organization expects the market to shrink 10 percent in 1997.
The National Association of Vehicle Manufacturers, Anfavea, said vehicle sales fell 45 percent during the first 10 days of November compared to the same period a month ago. The government's new measures, which include an increase of 5 percentage points in the excise tax for cars, invalidated Anfavea's 2.1 million-unit production forecast for 1997. Now, with 1.8 million vehicles assembled through October, it is reviewing its figures.
Car dealers' inventories are up, and assembly plants are reducing working hours and anticipating collective vacations.
``Auto part sales have fallen 20-40 percent as of November, due to new production plans from manufacturers,'' said a plastics processor who supplies General Motors, Fiat, Ford and Volkswagen. ``Purchase orders shall return to the original levels as of March or April, resulting in a 5 percent increase for the car industry in 1998.''
According to this source, the change in the economy shall not alter strategies of global players to enter the Brazilian market.
``Companies ... still studying the market or looking for a local partner shall slow down for the next six months,'' the processor said.
Ten days ago, the Brazilian headquarters of Ernst & Young Consulting in SÃo Paulo conducted a survey of investment intentions on the part of its 20 foreign clients interested in entering the local market. One of the firms was a plastics auto parts molder.
``The current opinion is there's still significant opportunity and need to be in Brazil. The long-term outlook is still very positive, but it may take longer than people thought a few weeks ago to realize a return on investment,'' said Lee A. Sage global automotive leader at Ernst & Young LLP's headquarters in Cleveland.
``If you think macro, what's happening now could be a 3-4 month gap in a market expected to grow for the next five years,'' said Artur Carlos das Neves, director for manufacturing clients at the consulting firm's office in Sao Paulo.
Some U.S. and Canadian investors may take advantage of the crisis and buy heavily indebted local auto parts molders.
The new economic package has not yet affected the machinery industry, according to plastics equipment suppliers.
``The country is facing an adjustment period and it's still too early to determine the consequences. It's quite certain that 1998 will be a low growth year, but 1999 shall be better,'' said Humberto Savoia Jr., general manager at Husky do Brasil Sistemas de Injecao Ltda. of Sao Paulo
In the packaging arena, sales won't be affected until February or March, said Sergio Haberfeld, president of Abre, the Brazilian packaging industry association.
``We have not changed our 3-4 percent growth rate estimate over the R11.1 billion ($10 billion) in sales registered during 1996,'' said Haberfeld, who also is a board member of the plastics and paper packaging firm Dixie Toga SA.
``Effects will start appearing in the packaging business in April, when the unemployment wave begins,'' he said. ``It's like an oil tanker — it takes a while to stop and also to accelerate.''
With 70 percent of its sales destined to packaging and other popular products, the plastic resins sector also does not expect a decline for the next six months.
A study by Siresp, a SÃo Paulo-based association of thermoplastic resin manufacturers indicated a 7.21 percent increase in commodity resin sales through September compared with the same period of 1996.
``We shall close 1997 with a 7-7.5 percent growth rate and begin 1998 without any major changes,'' said Siresp's President Jean Daniel Peter.
Peter, who is the president of Union Carbide Investimentos e Participacoes S/C Ltda., said the processing industry has been aided a bit by resin producers, which did not adjust term sales to the new interest rates.
``We believe the interest rate hike to be temporary and that it's not worthwhile to pressure the processing industry. We do not believe in a devaluation of the real currency,'' he said.