Brazil Shipping Industry Update Quarter 3 2012

Includes 3 FREE quarterly updates

BMI believes 2012 will be another year of strong growth for Brazilian ports. Although we expect a healthy level of growth to continue during our forecast period, we caution that there are a number of risks to our outlook for the country's booming shipping sector, including the infrastructure deficit and signs of overheating in the Brazilian economy.
BMI notes that Brazil's transport network has not yet developed the infrastructure needed to handle increasing throughput levels, causing severe delays and increased costs for shippers. As such, we expect to see more investment in infrastructure, both public and private, as ports seek to deal with growing traffic and to capitalise on increasing trade opportunities.
Brazil's rapid economic growth has been aided considerably by the country's strong commodities mix.
However, we caution that much of the demand for Brazilian exports of raw materials has come from China. With a slowdown in Chinese economic growth looking increasingly likely, we are concerned that demand for the country's raw materials could weaken. On the domestic consumer demand side, we are concerned about the possibility of a slowdown in consumer spending in the coming months. This could result in a repricing of Brazil's previously unstoppable consumer growth story, hitting demand for imports of containerised goods.


Key Industry Data
- Total tonnage throughput at the Port of Santos to grow 12.2% in 2012 to reach 109mn tonnes. To 2016, we predict average annual growth of 10.5%.
- Container throughput at Santos to grow 16% to reach 3.5mn twenty-foot equivalent units (TEUs) in 2012, with average annual growth of 10% during our forecast period.


Key Industry Trends
Rapid Volume Growth And Need For New Port Infrastructure To Attract Investment To Brazil BMI believes Brazil is set to remain a popular area of investment for international container terminal operators, with both Santos Brasil and APM Terminals (AMPT) eyeing up three new container terminal concessions there. We remain confident that Brazil's shipping and freight transport sector will post strong growth over the medium term, fuelled by the government's commitment to improving infrastructure to support economic growth and prepare the country to host two major sporting events.
Sweet Success For Brazilian Ports As Sugar Exports To Flow Smoothly This Year We believe that Brazilian ports will avoid the crippling delays seen in 2010 during this year's sugar harvest, as favourable weather conditions and port improvements should ensure smoother operations. We caution, however, that continued investment in the country's port sector and landside infrastructure will be needed to ensure that it can handle increasing volumes of trade.
Santos Port Damage To Have Limited Impact For Now The problems facing the Brazilian port of Santos have caused delays in recent weeks, although BMI does not expect significant impacts on food prices unless the delays continue into March. One of Santos' major terminals was taken offline in mid-February after a collision with a dry bulk carrier, exacerbating delays to grain loading which typically accompany the Carnival festival in late February.
Risks To Outlook Potential downside risks to our outlook include a possibility of reduced Chinese demand for Brazilian commodities exports such as iron ore in 2012, due to monetary tightening, which would have a knock-on effect on its demand for raw materials. As China replaced the US in 2009 as the biggest importer of Brazilian products, any slowdown in Chinese spending would have a negative effect on Brazil's port sector.
A second downside risk is the possibility that Brazil will not be able to improve its port infrastructure in order to keep up with global demand for its main exports. The poor state of the country's port infrastructure has been a cause of concern for BMI for some time. Investment in infrastructure has not kept up with the rapid progress made in other areas of the economy. The chronic infrastructure deficit was clearly demonstrated in mid-2010, when ships queued for as long as a month to load sugar from local ports, as a record crop, high demand and wet weather combined to slow loading. These kinds of delays raise questions as to whether the country will be able to meet rising demand in the run-up to the 2014 World Cup and the 2016 Olympics.