Brazilian Exports Crashing

The Brazilian Government is undertaking measures to improve exports in the country. Recently, it announced plans of introducing 5,200 micro and small businesses in international trade by 2010.

Having lowered its benchmark interest rate to a record of 9.25%, cutting taxes on goods and having injected around $100 billion into currency markets, the government is trying to encourage exports and improve the economy under present conditions.

However, Gross Domestic Product shrank 0.8% in the first quarter. Moreover, Brazilian exports have fallen in the second quarter of 2009. In the month of April and May, exports of processed steel, iron ore and other metals fell 48% and export of crude and oil derivatives dropped by 51%.

This has hurt the state-run oil giant Petroleo Brasileiro S.A. (PBR), or Petrobras, and Vale do Rio Doce (VALE), one of the largest producers and exporters of iron ore and pellets in the world. Petrobras and Vale expect a huge fall in net profit during the second quarter of 2009.

Aracruz Celulose S.A. (ARA), the world’s largest producer of bleached eucalyptus pulp and Votorantim Celulose e Papel S.A. (VCP), a leading paper company incorporated in the state of São Paulo, are expected to report second-quarter results within this week. We anticipate VCP and ARA to suffer from the strength of the Brazilian currency for not being hedged, or for not being hedged enough after so many derivatives losses. Thus, companies are expected to report disappointing results during the second quarter.

Although, the Brazilian economy is expected to expand by 2.5% in 2010, it is expected to contract by 1.9% in 2009.

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