Brazilian Market Shows Resilience

By Charles Thurston, Ink World Correspondent | 10.07.09

The Brazilian graphics market will be a wild card in 2002, industry analysts say, with growth estimated anywhere between 1 percent and 5 percent, depending on national, regional and global economics.

“For 2001, we expect that the Brazilian graphics market will show sales growth of 1 percent in reals (the national currency), although that would translate into a drop of 20 percent in dollar terms to $5.4 billion from $6.7 billion the year before, because of the devaluation this year,” said Antonio Lourensato, an economist at the national trade association, Associacao Brasileira da Industria Grafica, or Abigraf, in Sao Paulo.

“But with the Taliban turned back, the global market seems to be recovering. So depending on the fate of Argentina – facing a potential foreign debt default – and on our presidential elections next year, the graphics market could go to 5 percent growth,” Mr. Lourensato said.

Ink manufacturers and suppliers that are established in the Brazilian market are accustomed to such variables, however, and are taking a more optimistic view for 2002 and thereafter.

“We have seen an increase in business in Brazil over the past few months, and believe that the economy is well-cushioned against the problems there,” said Charles de la Rock, sales representative for Latin America, Kerley Ink.

“We see the market recovery as positive 12 to 18 months out, but we (also) are taking a longer term view of the market,” he said. “We were doing business when the real was one-to-one with the dollar, and we’re still doing business now that it’s 2.4-to-1,” Mr. de la Rock added.

The two segments of the ink consumer market in Brazil that have shown the strongest growth this year are forms (up 7.7 percent) and editorial segments (up 4.2 percent), according to Abigraf. Thus, Kerley’s sales of newspaper inks in Brazil are hitting one of the industry’s sweet spots.

“These people are reading. I’m always surprised how often I see people with magazines and newspapers in Brazil, compared with New York,” said Mr. de la Rock.

The forms segment has lifted in part as a result of the repositioning of financial services companies into core business units, said Mr. Lourensato. “Banks and other companies which once owned their own in-house printing subsidiaries are now outsourcing bill printing. And with the rise in consumer spending, consumer credit and savings, there has been growth in the segment,” he said.

Among other current limits to growth in Brazil, one is expected to disappear with the coming rainy season.

“We have a serious problem here with an energy shortage and an obligation to drop consumption by 20 percent,” said Mr. Lourensato. Brazil, which draws its electrical energy largely from hydroelectric sources, has been suffering from a drought this year that has affected the entire country, much like was the case in California.

The financial crisis in neighboring Argentina, which is maintaining peso
parity with the dollar, has meant Brazilian exports to that country have
ground to a halt. But once Argentina defaults and devalues, regional trade
may also boost Brazilian ink sales, Mr. Lourensato pointed out.

The net effect of the slowing global and Brazilian economies is that foreign investment has slowed in Brazil. Total foreign direct investment in the graphics sector is expected to amount to about $445 million this year, down from $520 million last year, Mr. Lourensato said. These levels are a far cry from the $1 billion invested in 1997, when the current government’s
fiscal and monetary policies began to kick in solidly.

Apart from ongoing investments by ink manufacturers like BASF, which recently completed a $5 million investment in its Sistemas Graficas unit in Sao Paulo, industrial consumers of ink are also expanding activities. R.R. Donnelley & Sons, Chicago, IL, is continuing to invest in its relatively new $14 million Donnelley Cochrane Brasil phone book printing plant at Indaiatuba, in Sao Paulo state; the facility is slated to receive another $16 million investment by 2004.